Will Gambling Houses be subject to VAT from May 2005?

Rechtsanwalt Dr. Wulf Hambach

Hambach & Hambach Rechtsanwälte
Haimhauser Str. 1
D - 80802 München
Tel.: +49 89 389975-50
Fax: +49 89 389975-60
E-Mail: w.hambach@timelaw.de
As was made known today, the Federal Minister of Finance intends to present a draft bill (Referentenentwurf) which provides that the gambling houses must pay VAT from next month onwards and this in addition to their taxes to the individual federal states.

The background to the additional charge is as follows:

In a decision of the 17th of February 2005 (Case no. C-443/02 and C-462/02) the ECJ determined that the national provisions which render only the operation of public gambling houses tax free and not the operation of games of chance or gaming machines, is in breach of Art. 13 Sec. B Lit. f of 6. EC-Directive (6. VAT Directive), i.e., in breach of EC Law.

In addition, the ECJ decided that this directive was of direct effect and that, therefore, the relief could be directly relied on by an organiser or operator of gambling and gaming machines.

The above mentioned draft bill was planned to ensure the equal treatment of all gambling operators.

In order that this actually satisfies EC requirements, it is not only the freedom from taxation which has to be removed for public gambling houses (Art. 4 No. 9 Lit. b of the VAT Act, UStG) rather the game charges for all gambling operators must be standardised.

In the draft, it is stated as follows (under II. Besonderer Teil zu Artikel I, (Particulars relating to Article 1) final paragraph):

„The revenue of the legitimate public gambling houses which to date has been tax free will, in the future, be subject to VAT. An economic charge to the gambling houses could be worked against by passing this VAT onto the final consumer or lowering the state gambling house charges.“

How far the states will be „voluntarily“ prepared to miss out on a portion of their gambling house charges is now highly questionable.