CELEX: 62009CC0058
Language: en
Date: 2010-03-11 00:00:00
Title: Opinion of Mr Advocate General Bot delivered on 11 March 2010. # Leo-Libera GmbH v Finanzamt Buchholz in der Nordheide. # Reference for a preliminary ruling: Bundesfinanzhof - Germany. # Reference for a preliminary ruling - Value added tax - Directive 2006/112/EC - Article 135(1)(i) - Exemption of betting, lotteries and other forms of gambling - Conditions and limitations - Discretionary power of the Member States. # Case C-58/09.

OPINION OF ADVOCATE GENERAL
      BOT
      delivered on 11 March 2010 1(1)
      
      Case C‑58/09
      Leo-Libera GmbH
      v
      Finanzamt Buchholz in der Nordheide
      (Reference for a preliminary ruling from the Bundesfinanzhof (Germany))
      (Common system of value added tax – Exemption of gambling – National legislation exempting only lotteries and betting from VAT – Taxation of the operation of gaming machines – Member States’ margin of discretion)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 inferred 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 conceivablethat 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 –	Original language:  French.
      
      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.