These new rules will apply from 1 July 2016 (draft bill Doc 54 - 1875/001, 2 June 2016). As the first details of the new regime are emerging, the question arises whether the new rules comply with EU law. Furthermore, given the very short deadline, the new rules’ implementation and their practical consequences, we expect that the VAT authorities will need to publish further guidance on this topic.
Current regime: a broad exemption for all gambling services
Article 44, para 3, 13° of the Belgian VAT Code (BVATC) currently applies a broad exemption for gambling services and exempts all bets, lotteries and gambling or cash games from VAT. This exemption also includes electronic gambling services. It is based on Article 135 (1) (i) of the VAT Directive, which provides an exemption on gambling services “subject to the conditions and limitations laid down by each Member State.”
Law reform cancels VAT exemption for online gambling services
Under the new Article 44, para 3, 13°, b) BVATC, all gambling or cash games, except for lotteries, will be subject to VAT to the extent that they are supplied online (and so qualify as ‘electronically supplied services’).
It appears that the sums received from players will determine the taxable amount for VAT. When a gambling company has a legal obligation (of any kind) to return to the players a certain amount of the sums that it has received from them then these sums must be deducted from the total sum received to determine the legal consideration (and thus the taxable amount) obtained by the gambling company. If the gambling company is not under any obligation to return to the players a certain amount of the legal consideration it has received from them or if it only receives a commission or fee from the players as remuneration for its services, then the taxable amount will be determined by the total amount of the sums obtained by the gambling company or the total amount of the commission or fees.
Finally, the new regime also provides that players will be jointly-and-severally liable to pay the Belgian VAT for gambling services purchased from a non-Belgian provider that is not VAT-registered in Belgium. This measure is being introduced to counter, in particular, VAT circumvention by e-gambling businesses organised outside Belgium.
As stated earlier, the government intends to implement these new rules from 1 July 2016.
Although, at this moment, only the basic principles of the new measure are known, already questions are arising regarding its practical application and its conformity with EU law.
Firstly, the fact that similar gambling services are treated differently for VAT purposes, to the extent that they are provided online or in land-based casinos, seems contrary to the principle of fiscal neutrality. That principle precludes treating similar goods and supplies of services differently for VAT purposes.
While the European VAT Directive gives the Member States broad discretion to determine whether or not to exempt gambling services from tax, the Court of Justice of the European Union’s (CJEU) settled case law requires the Member States to treat services that are similar, from the “typical” consumer’s point of view, in the same way. Services are similar when they have similar characteristics and meet the same needs from such a consumer’s point of view, meaning that their use is comparable and that the differences that exist between them do not have a significant influence on such a consumer’s decision to use one service or other (CJEU, 10 November 2011, C-259/10 and 260/10, The Rank Group).
At first glance, there does not seem to be a meaningful difference between the many on- and offline gambling services. Therefore, one could easily argue that these services are comparable, indeed identical, from the “typical” consumer’s point of view. Although the explanatory memorandum of the draft legislative bill contains a number of arguments justifying the distinction between online and offline gambling activities, it is doubtful whether they will be sufficient to comply with EU law. The same observation could be made for the joint-and-several liability that is limited to non-Belgian providers’ services. It is doubtful that this specific rule complies with EU law.
Secondly, it is not fully clear what is actually understood by so-called “online” gambling services (e.g. could television quiz channels qualify as online gambling services?). This will require a detailed description in administrative guidelines.
Yet, the new rules pose a problem for foreign gambling businesses as the VAT Directive provides that e-services are taxable in the Member State of the consumer when an e-service is supplied to non-taxable persons within the EU. Consequently, e-gambling services supplied from abroad will also become liable to Belgian VAT if they are supplied to a Belgian consumer.
The European Commission has recently published a working paper defining the scope of electronically-supplied services, focusing also on gambling services. Without going into too much detail, the EU rules state that only services that do not involve, or only require a minimum level of human intervention should be considered as electronically-supplied services. However, as the development of the online gambling industry has led to an expansion of the types of games that could be supplied online, some of which might require a greater or lesser degree of human intervention, it is questionable whether the Commission’s proposed clarifications and guidelines will be sufficient to eliminate the uncertainty surrounding the definition of electronically-supplied services. As a result, we expect the new measure will lead to future discussions with the Belgian tax authorities about VAT liability in Belgium for foreign gambling businesses.
Finally, the new regime poses some technical challenges as it remains unclear which concrete method should be used to assess the taxable amount of a given gambling activity and how that method should be applied. Also, the question arises how the joint-and-several liability for the players will be implemented in practice.
Although it is expected that the Belgian tax authorities will address most of the practical issues raised here in the forthcoming administrative guidelines, the fundamental questions remain, especially regarding the new regime’s compatibility with the EU VAT rules. We will continue to update you on all developments and are available to advise whether (and to what extent) this new regime will affect your business. Do not hesitate to contact us if you would like more information about this issue.
Tiberghien VAT Team - june 7th 2016