62009CC0058_EN
Opinion of the Advocate-General
Opinion of the Advocate-General
1. The legislation of the European Union relating to value added tax (‘VAT’) provides that gambling is exempt from VAT, subject to the conditions and limitations laid down by each Member State.
2. These preliminary reference proceedings again concern the interpretation of the margin of discretion thus conferred on the Member States in regard to the exemption of gambling.
3. The question to be determined is whether a Member State is entitled to restrict that exemption to a limited number of forms of gambling, namely lotteries and betting, although they account for only a minor part of all gambling carried on in the territory of that State and of the turnover generated by such gambling.
4. The dispute in the main proceedings again arises from a challenge by an economic operator to a decision to make the operation of slot machines subject to VAT.
5. In this Opinion I intend to set out the reasons why, in my view, the discretionary power of the Member States to lay down the conditions and limits applicable to the exemption of gambling is not determined by a quantitative criterion. I shall propose that the Court interpret the relevant European Union legislation as entitling a Member State to exempt from VAT only a minor part of the forms of gambling operated in its territory, such as betting and lotteries, and to make all other forms of gambling subject to VAT.
I – Legal framework
A – European Union law
1. Directive 2006/112/EC
6. The relevant provisions are laid down in Council Directive 2006/112/EC, (2) which entered into force on 1 January 2007. That directive constitutes a recasting, without any substantive amendment, of Sixth Council Directive 77/388/EEC. (3)
7. VAT is intended to have the widest possible scope and to cover, inter alia, all services. Thus, under Article 2(1)(c) of Directive 2006/112, the supply of services for consideration within the territory of a Member State by a taxable person acting as such is subject to VAT.
8. European Union legislation provides, however, that certain activities may or must be exempt from VAT. Those exemptions are subject to the general provisions laid down in Article 131 of Directive 2006/112, which provides as follows:
‘The exemptions provided for in Chapters 2 to 9 shall apply without prejudice to other Community provisions and in accordance with conditions which the Member States shall lay down for the purposes of ensuring the correct and straightforward application of those exemptions and of preventing any possible evasion, avoidance or abuse.’
9. Directive 2006/112 then goes on to list the exempt activities. Article 135(1)(i) of the directive provides as follows:
‘Member States shall exempt the following transactions:
…
(i) betting, lotteries and other forms of gambling, subject to the conditions and limitations laid down by each Member State’.
10. Article 135(1)(i) of Directive 2006/112 substantively repeats Article 13B(f) of the Sixth Directive.
11. Finally, Article 401 of Directive 2006/112 provides that the provisions of the directive may not prevent a Member State from maintaining or introducing taxes on betting and gambling, excise duties, stamp duties or, more generally, any taxes, duties or charges which cannot be characterised as turnover taxes, provided that the collecting of those taxes, duties or charges does not give rise, in trade between Member States, to formalities connected with the crossing of frontiers.
2. The relevant case-law
12. The Court has provided the following clarification in regard to the margin of discretion allowed to the Member States by Article 13B(f) of the Sixth Directive.
13. In its judgment in Glawe, (4) it ruled on the taxable amount in regard to slot machines where, under the law, a certain percentage of the stakes committed by players is distributed to them by way of winnings. The Court ruled that the taxable amount for VAT purposes is constituted only by the proportion of the stakes available to the operator on his own account, that is to say, it does not include the proportion of the total stakes inserted which corresponds to the winnings paid out to players.
14. Similarly, the Court was called on to provide clarification on the scope of the principle of fiscal neutrality inherent in the VAT system in the case where Member States avail themselves of their right to determine the limits and conditions governing the exemption of gambling in their territory.
15. In the judgment in Fischer, (5) it held that that principle precludes the unlawful operation of gambling, in that case roulette, from being subject to VAT where the same form of gambling in an approved public casino enjoys exemption.
16. In its judgment in Linneweber and Akritidis, (6) the Court pointed out that the abovementioned principle precludes, inter alia, the provision of analogous services, which therefore are in competition with each other, from being treated differently for VAT purposes.
17. It concluded that such a principle precludes national legalisation under which the operation of all games of chance and gaming machines are exempt from VAT when carried on in authorised public casinos, whereas the pursuit of the same activity by operators other than the persons running such casinos does not enjoy that exemption. In determining the conditions and limitations subject to which the operation of games of chance is to be exempted from VAT, the Member States therefore cannot validly make that exemption dependent upon the identity of the operator of such gaming. (7)
B – Domestic law
18. Following the judgment in Linneweber and Akritidis, the Federal Republic of Germany amended the provisions of its law concerning the exemption of gambling, under which the exemption depended on the identity of the service provider. Under Paragraph 4(9)(b) of the Law on turnover tax (Umsatzsteuergesetz) of 21 February 2005, (8) the following are now exempt from VAT:
‘transactions which come within the scope [of the Law on horse-race betting and lotteries (Rennwett- und Lotteriegesetz)]. Transactions which come within the scope of [that Law] and which are exempt from betting and lotteries tax, or on which that tax is generally not levied, shall not be exempt from turnover tax.’
19. Pursuant to the UStG, in conjunction with the Law on horse-race betting and lotteries, the forms of gambling exempt from VAT under German law are wagers on public horse races, fixed-odds sports bets and lotteries and draws.
II – Facts and order for reference
20. Leo-Libera GmbH (‘Leo-Libera’) operates a gaming hall equipped with slot machines. In its VAT return for January 2007, it declared the operations in connection therewith. Following determination of its provisional payment on account by the Finanzamt (tax office) Buchholz in der Nordheide, it brought a complaint against that determination, claiming that those operations were exempt from VAT. It takes the view that the amendment to Paragraph 4(9)(b) of the UStG is contrary to European Union law.
21. Following the rejection of that complaint by the Finanzamt Buchholz in der Nordheide, Leo-Libera brought proceedings before the Finanzgericht (Finance Court) (Germany). That court likewise dismissed the proceedings on the ground that slot machines were not one of the forms of gambling the operation of which was exempt from VAT. The Finanzgericht took the view that Article 135(1)(i) of Directive 2006/112 allows the Member States to provide for a derogation from the exemption such as that in the main proceedings.
22. In support of its appeal on a point of law (‘Revision’), Leo-Libera argues that, under Article 135(1)(i) of Directive 2006/112, a Member State cannot exempt only betting and lotteries, but must also exempt other forms of gambling from VAT. National legislatures are, admittedly, empowered to make such exemptions subject to conditions and limits. None the less, it argues, they are precluded from taxing ‘other forms of gambling’ in a general way. Inasmuch as German legislation makes approximately 63% of all gambling transactions occurring on German territory subject to VAT and only a minority of the forms of gambling therefore enjoy the exemption provided for in Directive 2006/112, the national legislation at issue, it is submitted, contravenes European Union law.
23. The case came before the Bundesfinanzhof (Federal Finance Court) (Germany), which expressed doubts as to the conformity with European Union law of Paragraph 4(9)(b) of the UStG. The Bundesfinanzhof takes the view that, under both Article 13B(f) of the Sixth Directive and Article 135(1)(i) of Directive 2006/112, the operation of gaming and gaming machines must, as a matter of principle, be exempted from VAT. However, Paragraph 4(9)(b) of the UStG limits that exemption to such a point that taxable transactions predominate.
24. In the light of those considerations, the Bundesfinanzhof decided to stay proceedings and to refer the following question to the Court for a preliminary ruling:
‘Is Article 135(1)(i) of Council Directive 2006/112 … to be interpreted as meaning that Member States are permitted to have a rule under which only specified forms of (race) betting and lotteries are exempt from tax, and all “other forms of gambling” are excluded from the tax exemption?’
III – Analysis
25. The national court is essentially asking whether Article 135(1)(i) of Directive 2006/112 must be interpreted as meaning that a Member State is entitled to limit the exemption from VAT in regard to gambling to a limited number of forms of gambling, such as betting and lotteries, and to make all other forms of gambling, including slot machines, subject to VAT.
26. The national court is referring that question to the Court of Justice because its national legislation has the effect of making the majority of the forms of gambling operated on national territory subject to VAT and because the forms of gambling thus taxed account for nearly 63% of turnover generated by all gambling activity. It is therefore seeking to ascertain whether, by making a predominant proportion of the forms of gambling subject to VAT, the German Government has exceeded the margin of discretion conferred on it by Article 135(1)(i) of Directive 2006/112.
27. Like the Member States which have submitted observations in these proceedings (9) and the European Commission, I am of the view that the provision at issue does confer such a margin of discretion on the Member States. I base that analysis on the wording of that provision and on the scheme of which it forms part and the objectives which it pursues, as elucidated in the case-law.
28. With regard to the wording of Article 135(1)(i) of Directive 2006/112, it must be noted that this does not lay down any quantitative restriction as to the number of forms of gambling that may be subject to VAT or as to the proportion in terms of turnover that those forms of gambling may account for in relation to the total turnover resulting from gambling.
29. By providing that forms of gambling are to be exempt from VAT ‘subject to the conditions and limitations laid down by each Member State’, without further stipulation, the European Union legislature plainly wished to leave it to each Member State to determine the forms of gambling that were to be subject to VAT, without circumscribing that margin of discretion with conditions as to the category to which they belong (betting, lotteries or other), their number in relation to the number of authorised forms of gambling, or the share of turnover for which they account.
30. Accordingly, Article 135(1)(i) of Directive 2006/112 does not, on its wording, preclude a Member State from exempting only a small number of forms of gambling, such as betting and lotteries, from VAT.
31. That analysis is, in my view, corroborated by the European Union’s scheme of rules on VAT, of which the exemption provided for in Article 135(1)(i) of Directive 2006/112 forms part.
32. It may be in ferred from the case-law that when a Member State, within the margin of discretion conferred on it by European Union legislation, exercises its right to make transactions liable to VAT, or not to do so, it must observe the general objectives and principles of the Sixth Directive, in particular the principle of fiscal neutrality and the requirement for correct, straightforward and uniform application of the exemptions provided for. (10)
33. With regard to the scope of the principle of fiscal neutrality, as we have seen, that principle precludes the provision of analogous services, which thus compete with one another, from being treated differently in respect of VAT. With regard to forms of gambling, it may be inferred from the abovementioned judgments in Fischer
and Lenneweber and Akritidis
that the different categories of gambling that may be authorised in a Member State – such as lotteries, betting, casino games and slot machines – are not to be regarded as being in competition with each other.
34. Ruling to the contrary would in large measure deprive Article 135(1)(i) of Directive 2006/112 of useful effect because it would be tantamount to compelling the Member States to adopt an all‑or‑nothing policy, that is to say, to exempt no form of gambling, or to exempt all forms.
35. In light of the case-law, the principle of fiscal neutrality therefore precludes one and the same form of gambling from being treated differently depending on whether it is being carried on in a lawful or unlawful manner or indeed depending on the identity and the legal form of the person operating it. Conversely, that principle does not preclude certain categories of gambling from being exempt and others from not being exempt.
36. The fact that in the present case exempt forms of gambling account for only a minor share of the forms of gambling authorised in Germany and of the total turnover generated by gambling does not therefore contravene the principle of fiscal neutrality where the exempt and non-exempt forms of gambling may be regarded as different forms of gambling and are therefore not in competition with one another.
37. It is legitimate to take the view that the legislation at issue satisfies this condition since the exempt and non-exempt forms of gambling are defined by category. Moreover, that legislation was adopted following the Linneweber and Akritidis
judgment, and, according to the written observations of the German Government, was adopted with the approval of the Commission’s services. In any event, the national court has not expressed any doubts as to whether that legislation is indeed in conformity with the principle of fiscal neutrality.
38. Next, in regard to the requirement of the correct, straightforward and uniform application of the exemptions provided for, that requirement also appears to me to be respected by the legislation at issue. Defining the scope of the exemption according to the categories of gambling seems to me to be using a criterion which appears a priori to be clear and precise for economic operators.
39. Conversely, to make that exemption dependent on quantitative criteria, as contended for by the appellant in the main proceedings, would certainly not provide the same guarantees. With regard in particular to the relevance of the criterion relating to the proportion of turnover of exempt forms of gambling, such a criterion would place those same operators in a situation of uncertainty because it could be determined only subsequently and the turnover produced by one or more forms of gambling in particular may vary significantly from one year to the next.
40. Accordingly, the German legislation at issue is, in my view, in conformity with the system of which Article 135(1)(i) of Directive 2006/112 forms part. It seems to me also to be in keeping with the objectives of that provision.
41. In fact, the exemption of gambling does not address a general‑interest need. Its purpose is not to ensure that that specific economic activity be treated more favourably in regard to VAT, unlike the activities listed in Article 132 of Directive 2006/112 concerning postal services, hospital and medical care, teaching, cultural services, and so forth.
42. The exemption from which gaming operations may benefit is founded on purely practical considerations relating to the fact that such operations do not lend themselves easily to the application of VAT. (11) VAT is a consumer tax, the taxable basis of which is the consideration received in respect of the supply of goods or services. That system is not easily applicable to forms of gambling in which consumers pay in stakes in return for a chance of securing winnings which, depending on the case, may be of a significant amount.
43. It may also be thought that, in the light of the possibility afforded to Member States in Article 401 of Directive 2006/112 to maintain or introduce a special tax on forms of gambling which is not in the nature of VAT, the exemption from VAT provided for in Article 135(1)(i) of the directive is also intended to prevent forms of gambling from being subject to double taxation.
44. I construe theses provisions as meaning that the Member States have the possibility of making each form of gambling subject either to a special charge or to VAT.
45. In my view, it cannot therefore be inferred from those objectives that the Member States are required to exempt from VAT a preponderant share or a specific proportion of forms of gambling authorised within their territory, since the issue whether gaming operated in a State may lend itself more or less well to the application of VAT depends specifically on the forms of gambling that are authorised in that State and the range of forms of gambling offered within the European Union may vary considerably from one Member State to another.
46. It is common ground that, in the absence of harmonisation of European Union law, the number of forms of gambling authorised in a Member State and the conditions under which they may be carried on are matters which continue to be within the purview of the legislative power of that State. It is also common ground that the Member States, for cultural reasons and owing, specifically, to the risks that that particular economic activity entails for public policy and consumers, may restrict the exercise thereof and ban completely a specific form of gambling on their territory. (12)
47. It is therefore perfectly conceivable that all the forms of gambling authorised in a Member State may, in light of the conditions laid down by that State for the operation thereof, be conducive to the application of VAT, such as the slot machines in the Glawe judgment, with the result that none of them will be exempt.
48. I well note that the objective underpinning Article 135(1)(i) of Directive 2006/112 does not warrant the imposition, in circumscription of the power of exemption conferred on the Member States under that provision, of a quantitative or proportional criterion that would have mandatory value throughout the European Union.
49. In the light of the foregoing, I propose that the Court should rule that Article 135(1)(i) of Directive 2006/112 must be interpreted as meaning that a Member State is entitled to limit the exemption of gambling from VAT to a limited number of forms of gambling, such as betting and lotteries, and to make all other forms of gambling, including slot machines, subject to that tax.
IV – Conclusion
50. In the light of the foregoing considerations I propose that the Court should reply in the following terms to the question referred for a preliminary ruling by the Bundesfinanzhof:
Article 135(1)(i) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that a Member State is entitled to limit the exemption of gambling from value added tax to a limited number of forms of gambling, such as betting and lotteries, and to make all other forms of gambling, including slot machines, subject to that tax.
(1) .
(2)  –	Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1).
(3)  –	Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment
(OJ 1977 L 145, p. 1) (‘the Sixth Directive’), repealed, as from 1 January 2007, by Directive 2006/112.
(4)  –	C‑38/93, [1994] ECR I‑1679.
(5)  –	C‑283/95, [1998] I‑3369 (paragraphs 27, 28 and 31).
(6)  –	Joined Cases C‑453/02 and C‑462/02, [2005] ECR I‑1131 (paragraph 24).
(7)  –	Linneweber and Akritidis
(paragraph 29).
(8)  –	BGBl. 2005 I, p. 386, Law as amended by the Law combating abuses of tax law (Gesetz zur Eindämmung missbräuchlicher Steuergestaltungen) of 28 April 2006 (BGBl. 2006 I, p. 1095; ‘the UStG’).
(9)  –	That is to say, the Kingdom of Belgium, the Federal Republic of Germany, Ireland and the United Kingdom of Great Britain and Northern Ireland.
(10)  –	Judgment in Case C-246/04 Turn- und Sportunion Waldburg [2006] ECR I‑589, paragraph 31.
(11)  –	Judgment in Case C-89/05 United Utilities
[2006] ECR I‑6813, paragraph 23.
(12)  –	See judgment in Case C-275/92 Schindler [1994] ECR I‑1039, paragraph 61, on the prohibition of large-scale lotteries in the United Kingdom.