European Gaming Lawyer magazine Autumn 2016 | Page 14

supply to where it is “effectively used and
enjoyed” by consumers in the Member
State. Of course, this only has any point if
the gambling is not exempt in the particular
Member State in question, but in that
regards one comes back to the wide measure
of national discretion given.
In concluding this part of our discussion
it may therefore be concluded that in terms
of the VAT liability treatment of gambling
services, the road to anything like EU
harmonisation is likely to be long and
difficult, with no certainty as to what would
be at its end.
Other Issues
There are other issues which merit
consideration:
• The measure of taxable turnover;
• Other applications of the use and
enjoyment relocation technique;
• Compliance/registration issues.
• We take each of these in turn.
Taxable Turnover
The orthodox view is for a gross profits basis
of assessment. This requires VAT (where it is
due) to be paid not on nominal receipts (i.e.
total stakes) but rather on such receipts less
winnings, where there is a legal obligation to
pay them out.
There is EU case law, guidance (from the
EU VAT Committee) and, in the case of the
UK, national guidance from HMRC (VAT
Notice 701/29).
In Town and County Factors Limited,
Case C-498/99 the ECJ found that the
taxable turnover for the organiser of the
UK “Spot the Ball” competition was the

14 | European Gaming Lawyer | Autumn Issue | 2016

full amount received, without deduction
of prize money paid out. This was,
however, on the basis that there was no
legal obligation to pay out such prizes,
the operator being bound in honour only.
The operator therefore, as a matter of law,
had the full amount of entry fees freely at
its disposal so that the full fee was to be
regarded as the consideration.
In contrast, in its earlier decision in H J
Glawe Spiel, Case 38/93, the ECJ had found
differently. In Germany the operator of
gaming machines was legally obliged (by
statute), through the internal mechanism
of the gaming machine, to pay out a certain
proportion of receipts as winnings and keep
them separate in the machine until paid out.
The operator’s taxable turnover was found to
exclude winnings paid out.
The majority view of the EU VAT
Committee is that the two decisions can
be reconciled on the basis that a legal
obligation to pay prizes (statutory or
contractual) is sufficient for their exclusion
from the taxable amount. UK HMRC
guidance advances the same treatment.
Use and Enjoyment
Mention has already been made of this tax
base protection measure, available under
Article 59(a) of the Directive, in specified
factual circumstances. This measure also
extends to services supplied business to
business (B2B), where they are supplied from
an EU business to a non EU business recipient.
Let us say that, for example, an offshore
(outside EU) gaming operator supplies
gambling services (electronic or otherwise)
to a UK payer. To attract other customers

it will buy UK advertising services. The
basic rule for B2B services is not the origin
principle (i.e. taxation in the country where
the supplier belongs) but the “destination”
principle (i.e. tax in the country where the
gambling operator belongs): Article 44
of the VAT Directive. This would mean,
where the offshore destination country
has no VAT, that the advertising will
be obtained VAT free. If the gambling
operator were located in the UK, it would
have to pay VAT which, because gambling
is generally exempt in the UK, would
represent a permanent cost to the operator
(as irrecoverable input VAT).
The UK can under Article 59(a) (as it
has signalled it may do) alter the basis for
taxation of services supplied to offshore
operators by substituting the destination
principle for an effective use and enjoyment
one. The UK could then say that the offshore
operator itself uses and enjoys UK provided
advertising services in the UK so that the
advertising provider will be required to
charge UK VAT.
The use and enjoyment relocation facility
can be applied to most services made to a
non EU business customer. However