Out-Law News 2 min. read
11 Nov 2011, 4:13 pm
The European Court of Justice (ECJ) said that the Rank Group (Rank) had overpaid VAT by more than £250 million after HM Revenue and Customs (HMRC) breached EU rules on fiscal neutrality by having different rates of VAT for the similar games.
The case was referred to the ECJ after UK courts ruled that the gaming company, whose brands include Mecca Bingo and Blue Square online casinos, should not have paid VAT on mechanised cash bingo (MCB) games between 2002 and 2005.
The EU's fiscal neutrality law means that supplies of goods and services that are the same or similar must be treated the same for tax purposes to avoid any distortion of competition.
Tax law expert Ian Hyde of Pinsent Masons, the law firm behind Out-Law.com, said that the ECJ's "robust defence" of the basic principle of fiscal neutrality was an important decision for taxpayers facing discriminatory VAT treatment.
"HMRC is desperately resisting fiscal neutrality arguments by throwing up any argument it can come up with," he said. "However, the most important general point is that the ECJ has rejected the UK's argument as to whether there has to be actual competition rather than the clear line from previous cases that competition can be inferred from goods being similar."
Rank claimed there had been inconsistencies in the way HMRC had applied VAT on participation fees for its different types of MCB and slot machines.
Under applicable laws at the time MCBs were only exempt from VAT if both the stake was lower than or equal to 50p and the prize was lower than or equal to £25. If both those conditions were not fulfilled, VAT was charged on the game.
The UK had claimed that there could be no breach of fiscal neutrality unless the difference in VAT treatment between the different games affected competition. However, the ECJ held that as long as the supplies were identical or similar from the viewpoint of the player, competition considerations did not have to be separately proved.
"The principle of fiscal neutrality must be interpreted as meaning that a difference in treatment for the purposes of value added tax of two supplies of service which are identical or similar from the point of view of the consumer and meet the same needs of the consumer is sufficient to establish an infringement of that principle," the judgment said.
"Such an infringement thus does not require in addition that the actual existence of competition between the services in question or distortion of competition because of such difference in treatment be established," it said.
A smaller claim regarding VAT on certain amusement machines was referred back to the UK courts.
"Rank is considering the implications of the ECJ decision with its advisors on its amusement machines claim for £30.8m including interest and will provide an update on this claim in due course," the company said in a statement.
