Memo To: / Location: Michael Bailey (PwC UK) From: / Your office: Herman van Kesteren (PwC NL) / Ad van Doesum (PwC NL)
Cc: Bertjan Janzen (PwC NL) / Christopher P Orchard (PwC UK) / Susan Patricia Knight (PwC UK) Date: 3 August 2009 Subject: VAT treatment of gaming machines in the Netherlands
Dear Michael,
Further to your e-mail of 17 July to Bertjan Janzen, regarding the Dutch approach towards the VAT treatment of gaming machines, please find below our comments.
You asked us whether in the Netherlands one of the reasons to introduce the exemption was a potential breach of fiscal neutrality as between gaming machines and other forms of betting and gaming. You also would like to know if in the Netherlands an opportunity arises to reclaim VAT on gaming machine services.
1. Introduction
In the Netherlands, the VAT exemption for games of chance (gambling) is connected to the betting tax. Gambling that is subject to betting tax is VAT exempt. Gambling that is exempt from betting tax is VAT taxed.
Before 1 July 2008, gaming machines were exempted from betting tax. Therefore, gaming machines were VAT taxed. Since 1 July 2008, the betting tax in the Netherlands has been amended. Gaming machines are now subject to betting tax. Due to the link between betting tax and the VAT exemption, gaming machines are exempt from VAT since that date.
2. Fiscal neutrality as argument for the changes
According to the proceedings in Dutch parliament, these changes have been based on two arguments. Firstly, on the basis of the principle of neutrality (in the sense of the principle of equal treatment) it was regarded illogical to treat gaming machines different from games that can be played in a casino. Secondly, it was argued that when the exemption was firstly introduced in Dutch VAT law, it was not possible to make a clear distinction between gaming machines on which a game of chance (exempt) can be played and gaming machines on which a game of skill can be played (taxed). This explains why gaming machines were taxed. However, according to the Minister, such a distinction can be made nowadays. In his view there is no need anymore to tax gaming machines on which a game of chance can be played.
Therefore, in answer to your first question, it has in fact been argued that one of the reasons to introduce the exemption was a potential breach of fiscal neutrality as between gaming machines and other forms of betting and gaming. For your reference, please find below an unofficial translation of the relevant part of the proceedings in Dutch parliament:
“When the current Dutch VAT law was introduced (1964) it was difficult to make a distinction between machines on which a game of chance can be played and machines on which a game of skill can be played. From the viewpoint of fiscal neutrality it is however illogical to treat games of chance played on a gaming machine differently from games of chance played in a casino on a table. Nowadays it is possible to make a distinction between machines on which a game of chance can be played and machines on which a game of skill can be played. Therefore, machines on which a game of chance can be played, are subject to betting tax starting 1 January 2009 (note: at a later stage, this date was changed to 1 July 2008)”.
In addition, we note that if the principle of neutrality is applied too strictly, the discretion of the Member States to define the terms of the VAT exemption does not have significance anymore. In this respect, we refer to the opinion of Advocate General Jacobs in the Fischer case:
“28. (…) Given that the transactions covered by Article 13B of the Directive take place on competitive markets, the principle of fiscal neutrality, if taken too far, would virtually remove any discretion accorded by the Directive to Member States to define the terms of the relevant exemptions. It nevertheless seems to me that the Directive may impose limits on the power of Member States, in defining the scope of exemptions, to distinguish between competing taxable persons performing substantially identical transactions”.
3. Retrospective claims
It should be noted that the Dutch approach before 1 July 2008 (all gaming machines VAT taxed and no gaming machine subject to betting tax), is quite the opposite of the initial approach taken by France. According to the Gabriel Bergandi case, France initially exempted all gaming machines from VAT (because they were all subject to a “state tax'). Only after a ECJ decision this French approach was changed to taxing all gaming machines. Therefore, it could be that the Dutch approach before 1 July 2008 was not so bad after all. In that case, there is obviously no ground for retrospective claims.
Also, as Advocate-General Jacobs mentioned in his opinion in the Glawe case, it may be contended that under the VAT Directive system Member States are allowed to tax certain games of chance:
“10. It seems to me that it is defensible to interpret the Sixth Directive as permitting the imposition of VAT on the operation of gaming machines. It is clear that the provision allows a Member State to exclude at least some gambling activities from the scope of the exemption, since Member States are expressly permitted to subject the exemption to “limitations”. Moreover, no bounds are expressly set to the range of gambling activities which may be excluded. It might however be doubted whether a Member State would be entitled to impose VAT on all forms of gambling.
(…)
13. I conclude, therefore, that under Article 13B(f) of the Sixth Directive Member States have the power, but not the obligation, to impose VAT on the use of gaming machines offering the possibility of winning. (…)”
It is questionable whether in the Netherlands it can be argued that taxing gaming machines in the period before 1 July 2008 gives rise to a VAT claim. Moreover, Dutch law does not provide for a mechanism that allows making retrospective claims. It is only possible to make a claim, if an appeal was made timely (six weeks). It is unlikely that businesses in the Netherlands lodged appeals in the period before 1 July 2008 (also see paragraph 4).
4. Current Dutch situation
In the Netherlands, the betting tax rate is 29%, whereas the VAT rate is 19%. If gaming machines are VAT taxed, there is a right to deduction of input VAT. Therefore, in the Netherlands, the general position is that businesses rather see their proceeds taxed with VAT and exempt from betting tax than the other way around.
It seems that the amended betting tax in the Netherlands contains major flaws, due to which it may be non-binding. A vast number of clients lodged appeals against the betting tax. PwC (we) are currently helping clients litigating.
5. Conclusion
The principle of neutrality has been brought up when the VAT regime for gaming machines (on which games of chance can be played) changed from VAT taxed to VAT exempt. There seems however not to be a viable opportunity in the Netherlands for making (retrospective) claims on the basis of the principle of neutrality. Moreover, it appears there is no solid business case for making retrospective VAT claims. Even if a business case exists, Dutch law does not provide for a mechanism on which retrospective claims can be based.
Please let us know if you have any further queries.
With kind regards, PricewaterhouseCoopers Belastingadviseurs N.V.
Herman van Kesteren and Ad van Doesum
Dear Michael,
I happy to be of assistance.
Without having done any further investigation, I do think that the time limit is sustainable. Given the option for the Member States to exclude certain activities from the exemption, I still wonder whether the neutrality argument is sufficient to give taxpayers the right to a (retrospective) claim. Moreover, it seems to me that remedies against breaches of Community law are a matter of national law. In San Giorgio, the ECJ ruled that national rules and procedures must not make it, in practice, impossible for rights conferred by the Community to be exercised. The national rules must however not be less favourable than those for similar claims under national law and may not make the Community rules in practice inefective. So, if it can be argued that in this case Community rules make the Community rules in practice ineffective in this situation, and on the basis of the neutrality argument it can be said that taxpayers do have a right based on Community law, then the time limit can perhaps be disputed. I would need to sort that out in more detail however.
With kind regards,
Ad
Ad
this is really helpful and thanks for the effort you have obviously put into this.
I have to say that if this was the position in the UK, we would pursue fiscal neutrality claims for the period pre 2008. I hear what you say about the 6 week time limit but do you think this is sustainable post San Georgio?
Happy to leave it to you
Once again, many thanks for this
Regards Mike Partner Tax
Direct Dial:+44 (0)20 7804 3254 Mobile: +44 (0) 7703 503564 Direct Fax :+44 (0)20 7213 2432
Ad van Doesum/NL/TLS/PwC@EMEA-NL 03/08/2009 14:43
Action (To) Michael Bailey/UK/TLS/PwC@EMEA-UK@EMEA-UK@INTL
Information (cc) Herman van Kesteren VAT/NL/TLS/PwC@EMEA-NL, Bertjan Janzen/NL/TLS/PwC@EMEA-NL, Christopher P Orchard/UK/TLS/PwC@EMEA-UK@EMEA-UK@INTL, Susan Patricia Knight/UK/TLS/PwC@EMEA-UK@EMEA-UK@INTL
Subject Re: URGENT: Knowledge of the gamin industry draft to the NL partners
1 File Attached - [126,464] - PLEASE SCAN FOR VIRUSES BEFORE USE
Dear Michael,
Further to your e-mail of 17 July to Bertjan Janzen, regarding the Dutch approach towards the VAT treatment of gaming machines, please find our comments in the attached memorandum.
Please let me know if you have any further questions.
With kind regards,
Ad van Doesum
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