C-42/02

LINDMAN

OPINION OF ADVOCATE GENERAL STIX-HACKL delivered on 10 April 2003 1

I — Introduction II — The relevant legislation

A — The lottery tax law (552/1992)

2. Pursuant to Paragraph 1 of the lottery tax law, lottery tax is to be paid to the State on lotteries held in Finland.

1. In this case, the Court is again asked to examine, following its judgments in Schindler, 2 Läärä 3 and Zenatti, 4the issue of the compatibility of national legislation on games of chance with the Treaty provi- sions on the freedom to provide services. 3. Under Paragraph 2(1) of that law, The Förvaltningsdomstol in Aland is seek- 'goods lotteries, money lotteries, bingo, ing a preliminary ruling to establish betting on horse races...' among others are whether Article 49 EC prohibits a Member to be regarded as lotteries. State from treating winnings from lotteries held in another Member State as the winner's taxable income, whereas winnings from lotteries held in the Member State concerned are exempt from income tax.

8. The following is an e x t r a c t from Paragraph 1(1):

6. Paragraph 9(1) and (2) of the income tax law determines who is liable for tax and on what income. According to that paragraph, persons who have been resident in Finland during the tax year are liable in respect of income earned in Finland and elsewhere. Taxable income is the income of persons 'Scope of the law. Tax shall be paid to the liable for tax in money or value. The municipality on earned income; losses may income of natural persons and estates is be set off on assessment to municipal tax in to be divided into two types of income, accordance with the provisions of the namely capital income and earned income. income tax law (FFS 1535/92) and the

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regulation on tax on income (FFS 1551/92) income tax law, as that exemption applies with the exceptions allowed under that law only to the lotteries listed in Paragraph 2 of and other specific provisions.' the lottery tax law, which includes only lotteries held in Finland. Nor were the winnings deemed to constitute capital income since capital income is interpreted as income which can be regarded as having been acquired from property, which was not the case in this instance.

III — Facts, main p r o c e e d i n g s and question referred

15. In the main proceedings, the Finnish to income tax, whereas lottery winnings authorities take the view that the tax from lotteries held in the Member State in exemption provided for in the income tax question are exempt from tax? law applies exclusively to lotteries held in Finland and that this does not pose an obstacle to the freedom of a Swedish lottery company to provide services in Finland, within the meaning of Article 49 EC.

IV — Submissions of the parties

18. Ms Lindman, the Finnish, Belgian and Danish Governments, the Commission, the 16. According to the information supplied EFTA Surveillance Authority and the Nor- by the Förvaltningsdomstol, Aland, on the wegian Government have submitted obser- basis of the law on lotteries, the exemption vations in this case. under the income tax law applies only to lotteries held in Finland. The national court therefore considers that the levying of income tax on winnings from lotteries held outside Finland (as earned income or capital income) may constitute discrimi- 19. Ms Lindman merely contends that she nation based on where the service is pro- considers the taxing of her lottery winnings vided. to be discriminatory. In her view, her winnings would not have been taxed had she been resident in Sweden or won a Finnish lottery.

2 1 . Taking the argument further, the Finn- ish Government explains that the organi- sation of games of chance in Finland is subject to rules designed to secure legal 24. The Finnish Government claims that certainty for players, prevent crime and since it is unable to tax foreign lottery limit damage to society as a result of organisers, it has no option but to tax the gambling. In Schindler, those objectives winners of lotteries held abroad. If it did were acknowledged to provide justification not, Finnish winners of foreign lotteries for restricting the freedom to provide ser- would, like the foreign lottery organisers vices and they also justify the rules on themselves, have a tax advantage, regard- taxation at issue, as they constitute part of less whether in the country of origin of the the national regulation of lotteries. lottery the gaming revenue was used in the public interest or the same protective objectives were taken into account as in the Finnish legislation.

22. The Finnish Government concedes that 25. In the oral proceedings, the Finnish the revenue from games of chance orga- Government further maintained that the nised by the three companies permitted to use of lottery revenue for benevolent pur- engage in gambling in Finland, is substan- poses was merely an additional argument tial. It points out that that this revenue goes as regards compatibility with Community to the national budget to ensure that it is law. Above all, in Finland games of chance used, as far as possible, for society's were generally subject to restrictions based benefit. The Finnish State has therefore on various measures relating to stakes and refrained from levying too heavy a tax on winnings. The level of winnings critically gambling in order to avoid jeopardising the determined the attractiveness of the games.

30. In relation to the Finnish legislation, the Belgian Government points out that although winnings from lotteries auth- orised in Finland are exempt from taxation, taxes are levied on the lottery organisers. The taxation of winnings from foreign lotteries has therefore to be perceived as a 27. The rules on taxation in question corrective element, enabling account to be cannot, however, be held to be discrimina- taken of the fact that Finnish lottery tory. The reason why winnings from organisers are taxed. If foreign lottery national lotteries are not taxed is because winnings were not taxed, there would be those lotteries are taxed via their organiser. an incentive to take part in lotteries abroad, In addition, winnings in national lotteries with the result that the national authorities are also taxable if the lotteries are held would lose control over the existing supply without permission. Consequently, there is of games of chance, with incalculable social no discrimination based on nationality. consequences.

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31. The Belgian Government also takes the For the purposes of tax exemption, a view that the Finnish legislation at issue is distinction is made not on the basis of justified for overriding public interest con- nationality but according to whether the siderations, as the Court ruled in its judg- lottery organiser is licensed. In addition, ments in Kraus 8 and Gebhardt, 9 for the Finnish legislation, which is designed to example. Those considerations include con- limit the supply of games of chance to a sumer protection and public policy, in socially acceptable level, is proportionate in particular. view of the gambling addiction that lot- teries can induce.

35. The Danish Government emphasises that the tax provisions at issue form an integral part of the legislation designed to 33. Furthermore, the Finnish legislation is regulate and restrict the organisation and not discriminatory in terms of nationality. marketing of lotteries and other games of chance, which the Court has acknowledged to be justified in the general interest for a 8 — Case C-19/92 Kraus [1993] ECR I-1663, paragraph 32. 9 — Case C-55/94 Gebbard [1995] ECR I-4165, paragraph 37. range of overriding public interest con- 10 — Cited in footnote 4 above, paragraph 36. siderations. Specifically in the light of the

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opportunities the internet offers, the pro- such games, w i t h o u t completely pro- hibition on marketing games of chance can hibiting participation in them. remain effective only if it is underpinned by additional fiscal measures.

40. In the Commission's view, the excep- tions provided for in Article 46 are not applicable to this case. In particular, the 37. But even were they to be held to be Finnish provisions at issue are not designed discriminatory, they are none the less com- to regulate the activity of games of chance patible with Article 49 EC on the grounds for public interest considerations or to set out in Article 46 EC, as the tax rules at protect individuals from the dangers of issue are designed to combat the damaging gambling. The effect of the Finnish legis- effects of gambling and do not exceed what lation is in fact that only foreign lottery is necessary to achieve those aims. Taxing winnings are to be deemed to be taxable winnings from a lottery held in another income. In the oral proceedings, the Com- Member State, with the result that the level mission claimed that the Finnish Govern- of winnings is restricted, offers the only ment's argument that the legislation at opportunity of limiting public interest in issue would contribute to public policy

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and public health was vague and far- 4 2 . The EFTA Surveillance Authority fetched. In addition, the reasons cited by largely concurs with the Commission's the Court in its judgments in Schindler, view. It notes that the Finnish income tax Läärä and Zenatti, cannot justify direct rules on lottery winners differ according to discrimination of the kind present in this the place of establishment of the service- case. Even assuming that the Finnish tax provider and therefore limit the freedom to provisions were not discriminatory, there provide services of organisers of games of could be no overriding public-interest con- chance. The unequal fiscal treatment of siderations to justify restricting the provi- national and foreign lottery winnings is sion of services. likely to deter Finnish players from taking part in foreign lotteries.

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Court has had to rule on the compatibility 48. In addition, in the cases in which the with fundamental freedoms of national Court has previously given a ruling con- provisions relating to games of chance. cerning the freedom to provide services in relation to games of chance, foreign ser- vice-providers or their representatives were active in the territory or on the market of the Member State of the recipient of the service, or were actually prevented from engaging in such activity.

45. But I must draw particular attention to two differences between this case and those mentioned at point 44 above, which will have to be taken into account in the following analysis under Community law. 49. In Schindler, nationals of a Member State were sent advertising material and tickets for a lottery by a lottery organiser resident in another Member State (or his agent) to allow them to participate in that lottery. 15

46. To begin with, in this case fiscal legis- lation on games of chance is for the first time being assessed in the context of the fundamental freedoms. 50. Läärä concerned the installation and operation of slot machines by an operator resident in another Member State. 16

51. In Zenatti, a representative active in the 47. The national court wishes to ascertain recipient Member State was organising whether the levying of income tax on betting on sporting events through a winnings from lotteries held in other coun- foreign promoter. 17 tries — whereas winnings from lotteries organised in the Member State in question are exempt from income tax — is com- 15 — See Case C-275/92, cited in footnote 2 above, paragraph 3. patible with the freedom to provide services 16 — See Case C-124/97, cited in footnote 3 above, paragraph 2. under Article 49 EC. 17 — See Case C-67/98, cited in footnote 4 above, paragraph 2.

53. This case, in contrast, does not concern the extent to which a foreign provider of gambling services may engage in that activity in another Member State. The issue is not activity undertaken by the Swedish A — The restrictive effect on the freedom lottery in Finland. The basic issue in this to provide services of the fiscal legislation case in fact concerns receiving a service at issue provided in another Member State. This involves one manifestation of the passive freedom to provide services, since Ms Lindman took part in the Swedish lottery during a stay in Sweden. 18 55. The first point to make is that it is settled case-law that although in the cur- rent state of Community law the area of direct taxation is not a Community respon- sibility, the Member States must exercise the competence they have retained in com- 54. Receiving that service in this case was pliance with Community law. 19 clearly incidental to, rather than the pur- pose of, Ms Lindman's stay abroad. The main issue in fact relates not so much to restrictions on the rights of an individual to travel to another Member State as restric- tions affecting the freedom to provide the service itself, that is to say aspects of 56. As the Court has already ruled in 'freedom of movement for products'. The Schindler, 20 the organisation of a lottery circumstances of this case are therefore constitutes a service within the meaning of Article 50 EC. In terms of its compatibility with the freedom to provide services, the 18 — It is settled case-law that the free movement of services includes the freedom for recipients of services to go to another Member State to receive a service there, without being obstructed by restrictions. See, among others, Case C-55/98 Vestergaard [1999] ECR I-7641, paragraph 20; 19 — See among others, Case C-136/00 Danner [2002] ECR Case C-224/97 Ciola [1999] ECR I-2517, paragraph 11; I-8147, paragraph 28; Case C-294/97 Eurowings [1999] Joined Cases 286/82 and 26/83 Luisi and Carbone [1984] ECR I-7447, paragraph 32; and Case C-279/93 Schum- ECR 377, paragraph 16; and Case 186/87 Cowan [1989] acher [1995] ECR I-225, paragraph 2 1 . ECR 195, paragraph 15. 20 — Case C-275/92, cited in footnote 2 above, paragraph 19.

59. Admittedly, the taxation of lottery winnings at issue here does not in itself prevent Finnish nationals from taking part in lotteries in another Member State. But B — The possible justification that taxation undoubtedly makes such lotteries appear less attractive than lotteries whose winnings are exempt from taxation 63. Infringements of the freedom to pro- vide services may in principle be justified 21 — See, among others, Case C-131/01 Commission v Italy on the grounds of public interest specifi- [2003] ECR I-1659, paragraph 26; Case C-294/00 Deut- cally provided for in Article 46 EC, which sche Paracelsus Schulen [2002] ECR I-6515, paragraph 38; Case C-58/98 Corsten [2000] ECR I-7919, paragraph 33; Case C-272/94 Guiot [1996] ECR I-1905, paragraph 10; Case C - 4 3 / 9 3 Vander Elst [1994] E C R I - 3 8 0 3 , paragraph 14; and Case C-76/90 Säger [1991] ECR 22 — S e e , for example, Case C-158/96 Kohll [1998] ECR I-4221, paragraph 12. I-1931, paragraph 35.

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must be applied in conjunction with generally, of consumers as well as the Article 55 EC or, in accordance with maintenance of order in society.' 23 case-law, for overriding public interest considerations.

67. In this case, however, it seems doubtful whether the fiscal legislation at issue can in any w a y be justified by — those or other — overriding public interest con- siderations. 64. In the Schindler, Läärä and Zenatti judgments, on which the governments party to this case principally rely, the Court did indeed refer to the justification under Article 46 EC but did not undertake a 68. In its case-law, the Court consistently discrete analysis on the basis of that article. refers in the context of such justification to measures that are 'applicable without dis- tinction'. 24

23 — See Case C-275/92, cited in footnote 2 above, paragraph 57 et seq.; Case C-124/97, cited in footnote 3 above, paragraph 31 et seq.; and Case C-67/98, cited in footnote 4 above, paragraph 29 et seq. 24 — See, among others, Case C-294/000 (cited in footnote 21 above), paragraph 39; Case C-424/97 [2000] ECR I-5123, paragraph 57; Case C-67/98 (cited in footnote 4 above), paragraph 29 and Case C-55/94 (cited in footnote 9 66. The Court held that the reasons cited in above), paragraph 37. the abovementioned cases — such as pre- 2 5 — See Case C - 2 7 5 / 9 2 (cited in f o o t n o t e 2 a b o v e ) , paragraph 47; Case C-124/97 (cited in footnote 3 above), venting the risk of fraud and other criminal paragraph 28; and Case C-67/98 (cited in footnote 4 acts, the exploitation of gambling addiction above), paragraph 26. In contrast to Schindler, the national provisions at issue in the latter two cases did and the prevention of damaging con- not contain a general prohibition on the relevant activities in those countries in relation to gambling but reserved sequences for individuals and society as those activities for certain (national) bodies. Although well as the use of the profits for public and such provisions inevitably disadvantage foreign service- providers or, in practice, preclude them from engaging in charitable purposes — had to be taken not such activity in the territory in question, the Court held the provisions to be applicable without distinction, because individually but together, and summarised the restrictions on gambling activities in both cases those reasons as concerning 'the protection affected all — national and foreign — economic oper- ators who were not licensed or could not obtain auth- of the recipients of the service and, more orisation.

26 — See Case C-224/97 (cited in footnote 18 above), 30 — At paragraph 16 of its judgment in Ciola, for example paragraph 16; Case C-484/93 Svensson [1995] ECR (cited in footnote 18 above), the Court stated that I-3955, paragraph 15; Case C-288/89 Collectieve Anten- discriminatory measures based on the place of residence nevoorziening Gouda [1991] ECR I-4007, paragraph 11; of the recipient are compatible with Community law only Case C-353/89 Commission v Netherlands [1991] ECR if they can be brought within the scope of an express I-4069, paragraph 15; and Case 352/85 Bond van Adver- derogation of the Treaty. And at paragraph 21 of its recent teerders and Others [1988] ECR 2085, paragraph 32. See judgment in Case C-388/01 (cited in footnote 26 above), it also my Opinion of 10 October 2002 in Case C-388/01 analysed a provision that made a distinction according to Commission v Italy [2003] ECR I-721, point 35. place of residence to ascertain whether it was justified for 27 — See Opinion of Advocate General Jacobs in Case C-136/00 overriding public interest considerations. (judgment cited in footnote 19 above), paragraphs 40 and 31 — See Case 270/83 Commission v France [1986] ECR 273, 41. paragraph 18. 28 — Case C-136/00 (cited in footnote 19 above), paragraph 32 32 — See, among others, Case C-353/89 (cited in footnote 26 et seq. above), paragraph 15 and Case 352/85 (cited in footnote 29 — Case C-388/01 (cited in footnote 26 above), paragraph 19. 26 above), paragraph 32.

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81. This is not in fact comparable taxation. As is apparent from the information sup- plied by the Finnish Government, the rate 78. The reference by the Finnish Govern- of tax to be paid by Finnish organisers of ment to the fact that taxation of lottery games of chance is not the same as lottery winnings at issue concerns not only foreign winners would have to pay were such lotteries but all lotteries held in Finland winnings considered to be taxable income. without authorisation, has, in my view, to As the Commission has stated, the rate of be rejected simply because legally organised income tax can amount to up to 56%, games of chance cannot be equated with whereas, according to the information illegal games of chance. supplied by the Finnish Government, the lottery tax is very low. It therefore has clearly to be assumed that winnings from national lotteries are subject to a lower level of taxation than winnings from foreign lotteries. 79. In addition, in this case — in contrast to the Schindler, Läärä and Zenatti cases which concerned activities involving games 33 — See above at point 48 et seq. and footnote 25.

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88. That is the clear implication of settled however, the need to avoid a fall in case-law, according to which economic revenue — as would, for example, happen grounds are not included among the if players were to take part in the lotteries grounds under Article 46 EC or among of organisers in other Member States — the overriding public interest consider- cannot justify restrictions on the freedom to ations which may justify restricting a free- provide services either under Article 46 EC dom guaranteed under the Treaty. 3 5 or by way of an overriding public interest consideration. 3 7

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94. In this case, however, there is no 97. But a national provision which restricts question of a direct connection between a fundamental freedom guaranteed under the taxation of organisers of Finnish lot- the Treaty can be justified on the grounds teries and the tax exemption for Finnish cited in Article 46 EC only if it respects the lottery winners. principle of proportionality.

98. According to settled case-law, this 95. Firstly, these are in fact two separate means that a provision of that nature must taxes on different taxable persons and, be appropriate to achieve the aim pursued secondly, as I have already pointed out, and may not go beyond what is required to the amount of tax payable by Finnish achieve that aim; the same result must not lottery organisers is not equivalent to the therefore be able to be achieved by less amount of tax that Finnish lottery winners restrictive means. 40 would have to pay were their winnings taxed at the same rate as foreign lottery winnings.

99. Before I consider whether the provision at issue is appropriate and necessary, let me, separately and briefly, draw attention to a certain ambiguity in the arguments advanced by the Finnish Government and also by the other governments in this case. D — Proof of justification for the legis- lation at issue and proportionality

100. On the one hand, the line of argument 96. At least some elements of the argu- used to justify the tax at issue intimated ments adduced by the Finnish Government that the tax itself served certain objectives, can be included among the grounds of such as curbing gambling addiction. public policy, public security and, above all, public health listed in Article 46 EC. As the Finnish Government has explained, the 40 — See to that effect, among others, Case C-100/01 Olazabal [2002] ECR I-10981, paragraph 4 3 ; Joined Cases C-34/95, legislation at issue is particularly designed C-35/95 and C-36/95 De Agostini [1997] ECR I-3843, to curb addiction to gambling and avert the paragraph 55; Case C-55/94 (cited in footnote 9 above), paragraph 37 and Case C-353/89 (cited in footnote 26 risk of money-laundering and other crimes. above), paragraph 19.

105. As far as the aim of preventing money-laundering or other crimes is con- cerned, that is to say protecting public policy, it is scarcely apparent from the 103. This has plainly to be construed as information provided by the governments meaning that the Member States may involved in this case how the tax at issue is basically regulate the framework con- appropriate or necessary for the achieve- ditions and level of protection applicable ment of those aims. to the provision of gambling activities in their territory as they see fit. In Schindler, Läärä and Zenatti the main issue was controlling supply. 42 In that context, the Court held that it was for the national authorities to consider 'whether, in the context of the aim pursued, it is necessary 106. As regards combating money-launder- to prohibit activities of that kind, totally or ing, the Norwegian Government pointed partially, or only to restrict them and to lay out that without the tax at issue foreign down more or less rigorous procedures for

43 — Case C-67/98 (cited in footnote 4 above), paragraph 33. 44 — See, in that connection, the Opinion of Advocate General 41 — Case C-67/98 (cited in footnote 4 above), paragraph 33. Fennelly in Case C-67/98 (judgment cited in footnote 4 42 — See footnote 25. above), at paragraph 33.

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winnings certificates could be purchased by 110. On the aim of curbing gambling individuals to prove to the tax authorities addiction, that is, protecting health, the that the money came from a legitimate submissions of the parties contain rather source. more compelling arguments. The aim is clearly to use fiscal measures to reduce the level of winnings and thereby make gamb- ling less attractive.

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scarcely consistent with the aims pur- terms of its effect (on curbing addiction) sued — by Finnish tax policy on lot- simply because it is patently at a lower rate teries — of curbing addiction to gambling, and, more particularly, because the lottery on grounds of public health protection. player pays it only indirectly. In addition, the Finnish Government has conceded that, in Finland, there is no cap on lottery stakes.

114. Generally speaking, it is apparent from the case-law on Article 46 EC that the grounds for justification that article lists do not permit Member States to operate a 116. When, finally, the Finnish Govern- double standard on restrictions. As regards ment argues that the taxation of foreign public policy, the Court has held that a lottery winnings is merely designed to Member State may not, on that ground, c o m p e n s a t e for the lack of t a x a t i o n adopt measures against a national of through lottery tax, that taxation would another Member State 'by reason of con- also need to take account of whether the duct which, when engaged in by nationals foreign lottery was already subject to of the first Member State, does not give rise taxation in its country of origin. Otherwise, to punitive measures or other genuine and the provision at issue goes beyond what is effective measures intended to combat that necessary to achieve the declared aim. conduct'. 46 Transposed to this case, this means that no more restrictive measure may be applied to foreign lotteries on grounds of preventing gambling addiction than are applied to national lotteries. In that context, it has to be pointed out that the Finnish Government was unable to cite measures comparable to the contested provisions and designed to prevent gamb- 117. As regards the possibility of ascertain- ling addiction in the context of Finnish ing this, it is possible to refer — and the lotteries. Court has already done so on several occasions in similar cases — to Directive 7 7 / 7 9 9 / E E C 47 according to w h i c h a Member State can request the competent authorities for any information that may enable it to effect a correct assessment of taxes on income. 48 In fact, as a result of the

121. I therefore propose that the Court answer the question referred as follows:

Article 49 of the Treaty establishing the European Communities precludes national rules, like the Finnish rules, under which lottery winnings from lotteries held in other Member States are included in the taxable income of the winner on assessment to income tax, whereas lottery winnings from lotteries held in the Member State in question are exempt from tax.

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