C-283/95

FISCHER v FINANZAMT DONAUESCHINGEN

OPINION OF ADVOCATE GENERAL JACOBS delivered on 20 March 1997 *

1. The issues raised by the present case, referred to the Court by the Finanzgericht (Finance Court) Baden-Württemberg, are as follows: whether transactions consisting in the unlawful provision of roulette games fall within the scope of VAT; if so, whether a Member State must exempt them from VAT when it exempts the provision of such games by licensed public casinos; if not, what con­ 3. Article 11 A(l)(a) of the Directive pro­ stitutes the taxable amount for VAT pur­ vides that the taxable amount for domestic poses. transactions is:

Relevant Community and national provi- sions

'... everything which constitutes the consid­ eration which has been or is to be obtained by the supplier from the purchaser, the cus­ 1 tomer or a third party for such supplies 2. Article 2 of the Sixth Directive provides: including subsidies directly linked to the price of such supplies'.

'The following shall be subject to value added tax:

8. The equipment used by Mr Fischer con­ sisted of a wheel bearing the numbers 1 to 24 6. Paragraph 1(1)(1) of the German Turn­ and also the 'numbers' O and X. Numbers 1 over Tax Law implements Article 2(1) of the to 12 were black and numbers 13 to 24 red. Directive by subjecting to VAT domestic The object of the game was to predict, by transactions effected for consideration by a placing chips on the appropriate squares of trader within the course of his business. Pur­ the gaming table, where the ball thrown by a suant to Article 13B(f) of the Directive, croupier would come to rest. The players Paragraph 4(9)(b) of the Law exempts inter purchased the chips for DM 5 each. In each alia the turnover of licensed public casinos game they could place one or more chips on arising from the operation of such casinos. the squares for one of the numbers 1 to 24, O and X {en plein), on the line between the two numbers (à cheval) and/or on the red and/or black numbers square. A player received 24 times the value of his stake where he placed his stake on the square for The facts and the national court's questions the number on which the ball came to rest, 12 times his stake where the ball came to rest on one of the two numbers between whose squares he had placed his stake and 2 times his stake where he correctly predicted that the ball would come to rest on red or black. Winnings were paid in chips after each game, 7. Under German law the game of roulette and the chips collected by croupiers were may be organised commercially only by available for payment of winnings and for licensed public casinos. From 1987 to 1989 purchase. Players who wished to discontinue Mr Fischer operated games of roulette at a the game could exchange their remaining number of locations in the Federal Republic chips for cash.

11. Secondly, on the assumption that Mr Fischer's transactions are taxable, the Finanzgericht seeks guidance on the taxable amount. The Finanzgericht is inclined to accept the view of the Finanzamt but consid­ ers that it is precluded from giving judgment in its favour by the Court's judgment in 4 Glawe, where it was held that the taxable amount for services consisting in the opera­ tion of slot machines was the net takings emptied from the machine after payment of 10. The Finanzgericht raises first of all the the winnings rather than the total stakes question whether the provision of the rou­ inserted into the machine by players. The lette games is taxable. Mr Fischer did not Finanzgericht notes the similarities between operate a licensed public casino within the the two forms of gambling. It adds that, meaning of Paragraph 4(9)(b) of the Turn­ although in its judgment the Court noted over Tax Law and indeed was convicted that the slot machines were by law set in under Paragraph 284 of the German Crimi­ such a way as to pay out winnings of at least nal Code for operating a prohibited game of 60% of the stakes inserted, that point cannot chance. Since Mr Fischer's turnover there­ be considered crucial to the Court's ruling. fore does not qualify for exemption under Paragraph 4(9)(b), the Finanzgericht con­ cludes that it is taxable under German law 2 — Case 289/86 Happy Family v Inspecteur der Omzetbelasting by virtue of the general charging provision in [1988] ECR 3655. Paragraph 1(1)(1), first sentence, of the Law. 3 — Case 269/86 Mol v Inspecteur der Invoerrechten en Accijn- zen [1988] ECR 3627. However, referring to the Court's judgments 4 — Case C-38/93 [1994] ECR I-1679.

14. In 'Einberger II' 8the Court extended its case-law on customs duties to VAT on unlawful imports of narcotic drugs. Subse-

5 — Case 50/80 Horvath v Hauptzottamt Hamburg-Jonas [1981] ECR 385. 6 — Case 221/81 Wolf v Hauptzollamt Düsseldorf [1982] ECR 3. If Question 2 is to be answered in the 3681. negative: How is the basis of assessment to 7 — Case 240/81 Einberger v Hauptzollamt Freiburg [1982] ECR 3699. be determined in cases described under 8 — Case 294/82 Einberger v HaupzoUamt Freiburg [1984] ECR Questions 1 and 2?' 1177.

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15. In two further cases the Court was asked to consider the same issue in relation to two 12 further categories of goods. In Witzemann 17. It is clear that the Court's case-law on it extended the case-law on customs duties narcotic drugs and counterfeit currency con­ and VAT to imports of counterfeit currency, stitutes an exception to the normal rule that taking the view that its reasoning in that lawful and unlawful transactions should be case-law applied with even greater force to accorded the same tax treatment. In Mol and counterfeit currency which, unlike narcotic Happy Family the Court held: drugs, was subject to a total prohibition on 13 importation and marketing. In Lange, on the other hand, the Court held that exports of goods to Eastern Europe made in contra­ vention of an export ban adopted within the framework of the Co-ordinating Committee for Multilateral Export Controls ( COCOM ) fell within the scope of the tax. In contrast to 'It must be acknowledged that the principle previous cases, the goods were not such that of fiscal neutrality does in fact preclude, as far as the levying of value-added tax is con­ cerned, a generalised differentiation between 9 — Cited in note 2. lawful and unlawful transactions. However, 10 — Cited in note 3. that is not true in the case of the supply of 11 — Mol, paragraphs 14 and 16 of the judgment; Happy Family, products, such as narcotic drugs, which have paragraphs 16 and 18. special characteristics inasmuch as, because 12 — Case C-343/89 [1990] ECR I-4477. 13 — Case C-111/92 [1993] ECR I-4677. of their very nature, they are subject to a

19. That is the case here. The transactions in issue in the present case are plainly distin­ guishable from transactions in narcotic drugs or counterfeit currency. The provision of gambling services such as roulette forms the subject of a substantial lawful trade which is 21. In that connection there is a further an integral part of the economy of the Com­ issue, not raised by the national court, which munity. It is not, to use the Court's words in is relevant to the outcome of the dispute, Happy Family and Mol, 'alien to the objec­ namely whether Germany is entitled under tives of the Sixth Directive'. The transactions Article 13B(f) to limit exemption from tax to in issue in the present case are unlawful roulette games provided by licensed public solely because a lawful game for which a per­ casinos. Article 13B(f) permits Member mit was held was converted into a game States to impose 'conditions and limitations' on the exemption provided for in that provi­ sion. However, the question remains

14 — Mol, paragraph 18 of the judgment; Happy Family, para- graph 20. 15 — Mol, paragraph 17 of the judgment; Happy Family, para- graph 19. 16 — Cited in note 13.

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whether the Member State's discretion in sion requiring authorisation would pursue an limiting the scope of the exemption is cur­ objective alien to the Sixth Directive. tailed by the principle of fiscal neutrality.

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were subject to different conditions of com­ laying down the conditions under which the petition. Under German law the counterpart exemption applies rather than making a gen­ to the VAT exemption for lawful roulette eral distinction — which the United King­ games is that they are subject to a special dom accepts is not permissible — between gaming or casino tax; transactions which lawful and unlawful trade. The national are not exempt from VAT are not subject to court presents the German rules as drawing a that tax. distinction between lawful and unlawful rou­ lette; its first question is put on that basis. There is nothing in the documents before the Court to cast doubt on that analysis. On the contrary, it appears that only lawful roulette is exempt from tax because roulette games can be provided commercially only by 25. It appears from the order for reference licensed casinos. That the distinction that the games in issue in the main proceed­ between lawful and unlawful roulette results ings are substantially identical to the roulette from a condition under which the exemption games provided by licensed casinos. It is is expressed to apply is of little consequence therefore difficult to see how it would be in that respect. consistent with the aim of fiscal neutrality underlying the Directive for a Member State to refuse exemption to the former on the ground that they are provided unlawfully.

31. I conclude therefore that a Member State is not entitled to limit the scope of the exemption provided for in Article 13B(f) of 29. The German Government's argument the Directive to the lawful provision of rou­ that the principle of fiscal neutrality does not lette games. preclude the German rules because different conditions apply to lawful and unlawful trade is in my view also untenable. It seems to me that, for the purpose of applying the principle of fiscal neutrality in cases such as the present, VAT must be considered in iso­ Question 2 lation. It would be unworkable to allow Member States to take account of the impo­ sition on lawful transactions of other unhar- monised taxes, whether direct or indirect, the amount of which may or may not corre­ spond to the VAT which is sought to be lev­ 32. By its second question the national court ied on unlawful transactions. asks whether, in the case of the transactions in issue in the main proceedings, the taxable amount is the amount retained by the opera­ tor during a tax period. This question arises only if the view is taken that Germany is entitled to tax the transactions although it exempts equivalent transactions effected by licensed public casinos.

30. It is clear from Article 33 of the Direc­ tive that excise duties and other special taxes may be imposed in addition to VAT where applicable; indeed Article 11A(2)(a) provides that such duties and taxes are to be included 33. The purpose of the national court's in the taxable amount for VAT purposes. A question is to determine whether the Court's Member State is therefore free to impose 18 ruling in Glawe concerning slot machine special taxes on gambling or gambling estab­ transactions applies to the roulette transac­ lishments and to determine the scope of such tions in issue here. The slot machines in taxes. It may, if it wishes, define the scope of question in that case were located in bars and any national taxes in such a way that a trans­ action is not subject both to VAT and to the national tax; but it is not obliged to do so. What a Member State is not entitled to do is 18 — Cited in note 4.

restaurants. Players activated a machine by its ruling in Glawe. In order to explain its inserting coins which either entered its win­ criticisms of the ruling it may be helpful to nings reserve in order to be subsequently set out a short passage from my Opinion in paid out as winnings or, if the reserve was the case: full, entered the machine's cash box, which was periodically emptied by the operator. The machines were required by law to pay out at least 60% of the stakes inserted into the machines as winnings. The German Gov­ ernment argued that the taxable amount con­ sisted of the total stakes inserted into the machines by players, including those stakes which were subsequently paid out as win­ nings. 'In my view the consideration which the operator obtains for his services for the pur­ poses of Article 11 A(1)(a) is limited to the amounts which he empties from the machine. That is apparent from an analysis of the transactions in issue and of other 34. The Court, following my Opinion, held forms of gambling. that the taxable amount for the purposes of Article 11 A(1)(a) of the Directive did not include the statutorily prescribed proportion of the total stakes inserted corresponding to the winnings paid out. Referring to its judg­ 19 ments in Boots and Naturally Yours Cos- 20 metics, the Court reasoned that the taxable amount for VAT purposes was the consider­ ation actually received by a taxable person. The consideration actually received by an operator of slot machines was limited to the Whilst gambling for money entails expendi­ proportion of the stakes which he could ture by gamblers, it does not in its simplest actually take for himself, i. e. the coins which form give rise to consumption of goods or entered the machine's cash box. services. Suppose, for example, that A enters into a private bet with B, both placing their respective bets on the table. A wins the bet and collects the money on the table. In such a case it would be absurd to suggest that A and B provide services to each other for a consideration equal to the amount of their 35. In the present proceedings the German respective bets. The placing of the bets and Government asks the Court to reconsider collection of the winnings is simply part of the gambling transaction. The placing of the bets, although it involves the outlay of money, does not constitute the consumption 19 — Case C-126/88 Boots Company [1990] ECR I-1235. of goods or services which is the taxable 20 — Case 230/87 Naturally Yours Cosmetics v Commissioners of Customs and Excise [1988] ECR 6365. event under the VAT system.

38. The German Government adds that its analysis is consistent with the principle 36. In the present proceedings the German underlying the Sixth Directive that VAT is Government rejects the premiss that the imposed on individual transactions. Under nucleus of the gambling activity does not the ruling in Glawe, according to which the involve consumption of goods or services. It taxable amount consists of the total of net considers that the gambling activity itself receipts less winnings paid out over a period, involves an exchange of services. An organ­ the reference to specific transactions is lost. iser of commercial gambling does not merely Moreover, under the ruling in Glawe the provide the framework for the gambling consideration for the provision of the frame­ activity but also participates in the game work for a game is the operator's gross mar­ gin, which is inconsistent with the principle that VAT is payable on a taxable person's 21 — Paragraphs 19 to 21 of the Opinion. turnover.

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40. While not asking the Court to reconsider its ruling in Glawe, the Commission does not think the same analysis can be applied to roulette. It contends that the taxable amount 43. The normal functioning of the VAT sys­ consists of the chips purchased by players. tem in conformity with that provision may By purchasing chips a player gains access to be illustrated by the following example. Sup­ the casino, its infrastructure, its particular pose that during a particular period a manu­ atmosphere and the tables. The range of pos­ facturer sells goods for DM 3 000 000, plus sibilities offered by a casino is infinitely DM 420 000 VAT (calculated at the rate of greater and more varied than that offered by 14% applicable in Germany at the material a gaming machine fixed on the wall of a res­ time). The manufacturer's VAT-inclusive tak­ taurant. ings are therefore DM 3 420 000, of which he is obliged to pay DM 420 000 (less any VAT already paid on his purchases) to the tax authorities. The remaining DM 3 000 000 is available to cover his profit margin, the cost components of his supplies and any other taxes for which he may be liable (e. g. profits tax). The proportion of the price of his goods, i. e. of his total takings, represented by VAT corresponds to the 41. The United Kingdom, on the other 14% VAT rate applicable in Germany hand, takes the view that the Court's ruling (DM 420 000/DM 3 000 000). The tax is in GUwe was correct and should be extended to roulette. It emphasises however that gambling is a special case and that the ruling is not applicable to other categories of 22 — First Council Directive 67/227/EEC of 11 April 1967 on the harmonisation of legislation of Member States concern- transaction. ing turnover taxes, OJ, English Special Edition 1967, p. 14.

45. If the ruling in Glawe is applied to the present case, the effect will be that VAT is payable on the organiser's net takings (after payment of all winnings) over a given period. That analysis produces results most closely resembling those applicable in the case of '... each stake must be regarded as consisting more typical transactions as in the example of two components. One component is the given above. It is ultimately only the amount price paid for the services provided by the retained by the organiser after payment of operator (including the VAT payable on that winnings which is available to cover his amount). The remainder of the stake may be profit margin, the costs of running the gam­ regarded as an amount contributed to the bling establishment, the VAT and other taxes common pool available to be paid out as which may be payable on his activities. It is winnings. Over a given period those compo­ that amount which may therefore be equated nents will correspond to the amounts col­ lected respectively by the cash box and the 24 reserve of the machine.'

23 — For the purpose of this example I shall ignore the small amounts of hidden VAT which may have been passed on to him in exempt purchases of goods or services (e. g. insur­ ances). 24 — Paragraph 29 of my Opinion.

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50. It is, I think, instructive to examine by way of contrast the consequences of the 48. For similar reasons the German Govern­ other interpretations which have been sug­ ment's argument that the ruling in Glawe gested in these proceedings. It appears from entails taxation of a taxable person's gross the order for reference that the Finanzamt's margin rather than his turnover contrary to analysis is based on the judgment of the the basic principles of the Sixth Directive is Finanzgericht Düsseldorf of 29 January also misconceived. The organiser's turnover 25 1986. The Finanzgericht reasoned that, if a is limited to that proportion of each chip player lost DM 50 during a session, the price representing the price of the organiser's ser­ which he paid for the chance of winning was vice. DM 50. If, on the other hand, he won DM 100 during a session, he paid nothing for the chance of winning. Since the operator had no record of players' net winnings or losses at each session, it was necessary for the Finanzgericht to lay down a method for estimating his taxable turnover. After under­ taking a calculation of probabilities the Finanzgericht concluded that the estimate 49. In practice individual calculations based was to be arrived at by multiplying the on each chip placed on the table are unneces­ operator's net takings by 6. sary. The total of the amounts received by way of consideration for individual transac­ tions corresponds to the organiser's net tak­ ings (after payment of winnings) during a 25 — EFG 1986, p. 421.

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55. The German Government's analysis would undoubtedly lead to an even higher tax burden. Suppose that a player purchases 53. The basic flaw in all those analyses is ten chips for DM 5 each. He stakes two that they produce a tax burden which is not chips in each of the first five games. In the proportional to the organiser's real turnover. first four games he loses. In the fifth game he The essential reason for that is that a large wins, restoring his total chips to ten. He then part of the amount staked is repaid to play­ plays another five games, again staking two ers as winnings yet is treated as the organi­ chips in each game. He loses the sixth to ser's turnover for VAT purposes. The result ninth games but then wins the tenth game, is an artificial inflation of his turnover. Such restoring the number of his chips to eight. analyses ignore the fact that the nucleus of a On the German Government's view tax gambling activity, although involving the use would be payable on the total chips staked, of money, does not involve the consumption i.e. DM 100 (twenty chips of DM 5 each). of goods or services. Yet the organiser's actual takings from the series of games would be only DM 10 (two chips of DM 5 each). That amount alone is the (VAT-inclusive) turnover available to cover his costs, his profit margin, the VAT and any other taxes which may be payable. Yet on the German Government's analysis his VAT liability alone would amount to 54. The effect of the Finanzamt's method DM12.28 (DM100 x 14/114). His actual may be seen from the figures given in the takings would therefore be insufficient even order for reference: for example, on the to meet his VAT liability.

59. I should however finally emphasise that, for reasons already mentioned, gambling transactions of the kind in issue which involve betting with money are something of a special case, and it must not be thought that the foregoing analysis can necessarily be 57. The Commission's analysis would pro­ extended to other transactions. bably result in a taxable amount somewhat lower than that resulting from the German Government's analysis since the taxable amount would not include chips won by players and placed as stakes in further games. Moreover, taxable persons could perhaps reasonably be required to keep a record of chips sold, making the use of estimates unnecessary. However, there is no reason to suppose that the method proposed by the Commission, which takes no account of winnings paid to players, would result in the imposition of a tax burden which was pro­ 60. In view of the answer which I propose portional to the organiser's actual takings to the second question, the national court's from his activities. third question does not arise.

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FISCHER v FINANZAMT DONAUESCHINGEN

Conclusion

61. Accordingly, I am of the opinion that the Court should reply as follows to the questions put by the Finanzgericht Baden-Württemberg:

Article 2(1) of the Sixth VAT Directive is to be interpreted as subjecting to VAT the unlawful provision of roulette games. A Member State is not entitled to limit the scope of the exemption provided for in Article 13B(f) of the Directive to the lawful provision of such games.