Case C-741/22: Casino de Spa SA and VAT Exemption for Online Gambling Services

The case between the Casino de Spa SA and other members of the VAT group Gaming Ardent, which provides online gambling services, and the Federal Public Service of Belgium (SPF Finances) is one of the most significant ECJ cases for companies operating in gambling, betting, and lottery industry, and that industry as a whole.

The so-called Casino de Spa SA case provides valuable insights and conclusions on whether an EU country may treat online gambling and other online games of chance differently from more traditional gambling facilities, such as land-based or analog gambling services, regarding applicable VAT rules.

Background of the Case 

Until 2016, online gambling services were VAT-exempt under the Belgian national legislation. However, on July 1, 2016, the provision to exempt these services from VAT was repealed, thus subjecting online gambling to VAT. However,  the decision to abolish VAT exemption was annulled in 2018 by Belgium's Constitutional Courts since they violated rules on how power is divided between the federal government and regional authorities.

Nonetheless, the Constitutional Court did not examine other legal arguments, such as whether the provisions breached EU law or fiscal neutrality principles. In addition, it allowed the provision to remain in effect for the taxes already collected before annulment, since refunding those payment would lead to financial and administrative issues.

Nevertheless, in November 2018, the Constitutional Court released another judgment on the subject matter, clarifying that the payment of VAT made during the period between July 1, 2016, and May 21, 2018 were valid.

Following the Constitutional Court judgments, in 2019 the VAT group Gaming Ardent (Gaming Ardent) requested a refund of a balance of VAT of EUR 15.5 million for paid VAT from July 1, 2016 to May 21, 2018. The Belgium Tax Authority rejected the claim, which it consider to contrast the Constitutional Court judgment, futher adding that Gaming Ardent owed EUR 29 million in VAT, fines, and interest.

Although the amount of fines imposed was later reduced, the Gaming Ardent initiated a court procedure before the Court of First Instance in Liege, claiming that the Belgian State should be held responsible due to an error by the Constitutional Court, which allowed the annulled tax provisions to remain in effect. Another argument was that the Belgian State was liable due to a legislative fault.

Due to the unique subject matter of the dispute, the Court of First Instance in Liege (First Instance Court) referred to six questions in its request for a preliminary ruling.

Main Questions from Request For Ruling

The main question raised by the First Instance Court was whether Belgium’s VAT system unfairly favors the national lottery by exempting its online games from VAT while taxing private operators’ online gambling services. Moreover, the question is whether such a practice violates EU rules and regulations and the principle of fiscal neutrality.

The First Instance Court also questioned the Constitutional Court's right to keep the annulled VAT provision in effect, thus preventing businesses from claiming a refund on paid VAT.

Furthermore, referred questions asked that ECJ address the different tax treatments of online and traditional gambling services and whether they contribute to the distortion of competition. Finally, if the ECJ finds that the answers to the previous questions are positive, the First Instance Court asks whether businesses should have a right to be compensated for wrongly paid taxes.

Applicable EU VAT Directive Article

The central point or article of the case is Article 135(1)(i) of the EU VAT Directive, which states that EU countries can exempt betting, lotteries, and other forms of gambling transactions from VAT according to the national conditions and limitations.

Belgium National VAT Rules 

Belgium's national VAT rules, specifically Articles 1(14) and 44(3) of the VAT Law, define games on chances or gambling, stating that lotteries and other forms of gambling are VAT-exempt, except those provided electronically.

Importance of the Case for Taxable Persons

The importance of the case, particularly for taxable persons in the gambling industry, lies in the clarification of how VAT exemptions apply to different forms of gambling. Additionally, the case underlines why and how EU countries must respect and ensure the correct application of the principle of fiscal neutrality.

Furthermore, the ECJ ruling provides valuable information for taxable persons about their rights when they pay taxes under national laws that do not comply with EU rules and regulations, including the right to claim a VAT refund. However, the ruling also highlights the limits to the right to claim a refund.

For taxable persons operating in the gambling sector, especially in online environments, the case and the ruling present a pivotal moment for determining VAT liabilities and requirements and safeguarding fair competition in the industry.

Analysis of the Court Findings

In examining the raised questions, the ECJ underlined that under Article 135(i) of the EU VAT Directive,  gambling activities such as lotteries or betting may be VAT-exempt, but only if the EU country sets the conditions and limitations. Moreover, the wording of the said Article gives national legislators freedom to decide which gambling transactions qualify for the exemption.

Nevertheless, following the ECJ case law, the EU countries must respect the principle of fiscal neutrality, meaning that similar services should not be taxed differently, thus preventing EU countries from creating distinctions in VAT treatment that could lead to distortion of competition. Moreover, the ECJ underlined that only meaningful differences affect whether similar services are taxed similarly.

To determine the similarity between two services, courts must assess the inherent features and use of services and their broader context, including how they are supplied and perceived. In other words, two services are similar if they have common characteristics and fulfill the exact needs from the average consumer's perspective.

If the average consumer does not view them as interchangeable, a difference in VAT treatment might be valid. However, if the consumer sees them as interchangeable, different VAT treatment of services could affect consumers' choices, thus violating fiscal neutrality.

Additionally, various factors that influence consumer's decisions in gambling, such as minimum and maximum stakes, prize amounts, chances of winning, game formats, and player interaction, must be considered for determining whether different gambling services are similar for VAT purposes.

In that regard, the ECJ noted that under Belgian legislation, lotteries differ from other forms of gambling in two key ways. The first one is that winners are determined purely by chance, without any influence from player skill or knowledge. The second factor is the significant waiting period between purchasing a ticket and knowing the outcome.

Furthermore, the ECJ highlighted that under the EU law, national courts must ensure that the EU law is applied correctly and interpreted, particularly when addressing conflicts between national and EU legal frameworks. Moreover, the national courts must not use any national provision that contradicts EU rules and apply EU law over conflicting national provisions, regardless of any decision by the national Constitutional Court to maintain their effects.

From that perspective, the ECJ noted that the principle of fiscal neutrality limits the discretion of EU countries when implementing VAT exemptions so that they can not use the conditions or limitations to deny a legitimate claim if they violate this principle. Also, if the national courts conclude that the higher court ruling is inconsistent with the EU law, they must follow the ECJ interpretations, even if that means contrasting the higher court.

Regarding the right to a refund, when the national bodies wrongly collect taxes under laws that violate the EU law, EU countries are generally required to repay or refund taxes. However, an exemption to this rule exists. In a situation where a refund leads to unjust enrichment, a refund may be denied. Specifically, refunds may not be required if it can be proved that the taxable person passed the tax burden onto others.

Nevertheless, determining whether a refund leads to unjust enrichment requires a thorough economic analysis.

Courts Final Decision

The ECJ concluded that the national legislation differentiating the purchase of lottery tickets online and other forms of online gambling does not violate the VAT exemption rule as long as the difference between those forms of gambling is apparent enough to influence average consumers' choices.

Additionally, under the principle of sincere cooperation and the primacy of EU law, national courts must disregard any provision from national laws that contradicts EU law. Moreover, such practice must be respected even when national constitutional courts decide to maintain those provisions or regulations.

Furthermore, the ECJ affirmed that the EU rules and regulations allow taxable persons to claim refunds of paid VAT due to wrongly applied EU rules if that refund does not lead to unjust enrichment for the taxable persons.

Finally, the ECJ ruled that if some operators benefit from unlawful VAT exemptions, which are considered state aid, taxable persons who do not have the same benefits from the exemption cannot claim damages equivalent to the VAT they paid.

Conclusion

Answering the First Instance Court's questions required an in-depth analysis of several key factors relating to the different forms of gambling and their characteristics. According to the ECJ decision, online gambling services may be treated differently from a VAT perspective than land-based or analog gambling services since those two forms of gambling are different for the average consumer.

Additionally, the ECJ once again underlined the importance of the principle of fiscal neutrality for EU countries to practice their rights to impose national conditions and limitations to the general VAT exemptions for betting, lotteries, and other gambling services.

Source: Case C-741/22 - Casino de Spa SA and others v SPF Finances, EU VAT Directive