HM Revenue and Customs v The Rank Group

JurisdictionEngland & Wales
JudgeMr Justice Norris
Judgment Date08 June 2009
Neutral Citation[2009] EWHC 1244 (Ch)
CourtChancery Division
Date08 June 2009
Docket NumberCase No: CH/2008/APP/669 AND CH/2008/APP/448

[2009] EWHC 1244 (Ch)



Before: Mr Justice Norris

Case No: CH/2008/APP/669 AND CH/2008/APP/448

The Commissioners for Her Majesty's Revenue and Customs
The Rank Group

Mr Christopher Vajda QC and Mr George Peretz (instructed by the Solicitor for HM Revenue and Customs) for the Appellants

Mr Paul Lasok QC and Ms Valentina Sloane (instructed by Forbes Hall LLP) for the Respondents

Hearing dates: 25

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Mr Justice Norris 8 June 2009

Mr Justice Norris

Mr Justice Norris:


A party to proceedings before a Value Added Tax and Duties Tribunal who is dissatisfied in point of law with the decision of the Tribunal may appeal under Section 11(1) of the Tribunals and Enquiries Act 1992 to the High Court. The Commissioners for Her Majesty's Revenue and Customs (“HMRC”) appeal two decisions of the Tribunal (Theodore Wallace and AJ Ring FCA FTII) arising out of proceedings brought by the Rank Group PLC (“Rank”): the two appeals have been conveniently referred to as “the Bingo Appeal” and “the Slots Appeal” respectively.


The broad question in the Bingo Appeal is whether the VAT treatment of mechanised cash bingo breaches the principle of fiscal neutrality: and the core issue on the appeal is whether the burden lay on Rank to adduce evidence to prove not only that there was a difference in VAT treatment between similar (and apparently competing) products but also that the difference did as a matter of fact actually affect competition.


The broad question in the Slots appeal is again whether the principle of fiscal neutrality has been breached. But the core issues on the Slots Appeal are two prior questions: whether there was in law a difference in treatment between similar supplies (which involves a consideration of the meaning of the word “machine” in the phrase “the element of chance in the game is provided by the machine”) ; and if there was not, then whether the evidence established that there was in practice (if not in law) a difference in treatment. If either of those questions is answered affirmatively then the question arises (again) whether it was necessary for Rank to establish on the evidence actual competition between similar supplies.


It should be noted at the outset that the issues are now of historic interest because of legislative changes both to gaming and to tax law. But that is not to diminish the importance of the issues. The Rank cases could involve some £61 million pounds (quantum is an issue which has been left over for agreement or determination once the ground rules have been established): the Rank cases are themselves test cases with over 1,000 similar claims outstanding.


I will begin with the common background. Article 13(B) of the Sixth VAT Directive (Council Directive 77/388/EC) provided that member States:—

“…shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse…(f) betting, lotteries and other forms of gambling, subject to conditions and limitations laid down by each member State…”

Member States of the Community were therefore required to exempt from indirect taxation “betting, lotteries and other forms of gambling”: but they could subject that exemption to limitations. The reason why, as a general rule, betting, lotteries and other forms of gambling should be exempt from VAT was explained by Advocate General Jacobs in paragraph 16 of his Opinion in Glawe [ [1994] ECR I-1679:—

“…the underlying problem…. is that gaming transactions are ill-suited to value added taxation. This was recognized by the Commission in its Proposal for the Sixth Directive, which provided for unqualified exemption of “gaming and lotteries”……; the Explanatory Memorandum to the Proposal stated: “The exemption…. of gaming and lotteries is based on purely practical considerations. Such activities are in effect ill-suited to taxation on a value-added basis and are better dealt with by means of special taxes”. In the absence of complete exemption under the adopted text of the directive, the Court must seek an interpretation which is consistent with the aims and principles of the common VAT system”.

It is common ground that the limitations have themselves to comply with the general principles of Community law.


One of the general principles of community law is that of “fiscal neutrality”. This was described by the Court of Justice in the Isle of Wight Case [2008] STC 2964 at para. 42 as “a fundamental principle of the common system of VAT”, and by the Court in the French Drugs Case [2001] ECR I-3369 at para. 21 as “inherent in the common system of VAT”. The Court went on in para. 22 of that case to state:—

“That principle in particular precludes treating similar goods, which are thus in competition with each other, differently for VAT purposes………. It follows that those products must be subject to a uniform rate. The principle of fiscal neutrality for that reason also includes the other two principles invoked by the Commission, namely the principles of VAT uniformity and of the elimination of distortion in competition.”

This passage reflects what was said by the Advocate General in Hoffman [2003] ECR I-2921 about “one of the Community legislature's most important starting points when it was drawing up the Sixth Directive” namely

“…. the equality of fiscal treatment, which was intended to combat distortion of competition. In this connection exceptions to harmonisation must be interpreted strictly, since each exception results in further divergence of the level of the tax burden in the Member States” (at para. 28 of his Opinion).

To the same effect is the more recent judgment of the Court in the AITC Case [2007] ECR I-5517 where at para.22 it is stated:—

“…. it is clear from the case law of the Court concerning VAT that, when the Member States come to define certain terms of an exemption, they may not prejudice the objectives pursued by the Sixth Directive or the general principles underlying it, in particular the principle of fiscal neutrality”.


The Sixth Directive relating to the exemption from VAT of betting and gaming (but subject to limitations) was implemented in domestic law by the Finance Act 1972. It is with this domestic legislation that I am concerned. I must, so far as is at all possible, interpret it in a way that accords with Community law: Santex [2003] ECR I-1877 para. 63. Schedule 5 FA 1972 contained the exemptions from the general charge to VAT. Included in the exemptions was:—

“Group 4 – Betting, Gaming and Lotteries

Item number:

1. The provision of any facilities for the placing of bets or the playing of any games of chance”.

This implemented the general thrust of Article 13(B) of the Sixth Directive (though it should be noted that playing a game of chance does not necessarily involve “gambling” or “gaming”). Consistently with the power conferred by that Article, limitations on the scope of this exemption were then defined in “Notes”. Note (1) provided:—

“Item 1 does not include:

(a) …or;

(b) The granting of a right to take part in a game in respect of which a charge may be made by virtue of regulations under Section 14 of the Gaming Act 1968; or

(c) …”.

Note (2) to Item 1 of Group 4 said that “game of chance” bore the same meaning as in the Gaming Act 1968. The effect of this provision (so far as material to the Appeals) was to exempt from VAT (i) all gaming machines and (ii) all games of chance other than games played under section 14 of the Gaming Act 1968 (section 14 games being left within the general charge to tax).


Section 14 games took place on premises licensed for the purpose and for regulated maximum stakes. But by section 21 of the Gaming Act 1968 there was taken out of the scope of section 14 certain such games where the stake was below 50p and where any money prize was below £25 and any non-monetary prize below £500. Such games remained exempt from VAT (because they were not played by virtue of regulations made under section 14, but by virtue of the provisions of section 21).


The Notes to Items 1 of Group 4 of Schedule 5 to the Finance Act 1972 were then amended by the Value Added Tax (Betting, Gaming and Lotteries) Order 1975. This added to Note (1) (exclusions from the exemption) an additional sub-paragraph (d) which related to “the provision of a gaming machine”. This reversed the previous complete exemption of gaming machines (a change not itself inconsistent with the Sixth Directive according to Advocate General Jacob's Opinion in Glawe (see paragraphs 10 and 23)): but for the purpose of bringing the activity within the charge to tax “gaming machine” was given a particular meaning. Games of chance played by machines that fell outside the definition remained within the exemption from VAT. The gaming machines that were brought within the general charging provisions to VAT were defined in a new Note (4). This was in these terms:—

“(4) “Gaming machine” means a machine in respect of which the following conditions are satisfied, namely:—

1. It is constructed or adapted for playing a game of chance by means of it; and

2. A player pays to play the machine…either by inserting a coin or token into the machine or in some other way; and

3. The element of chance in the game is provided by means of the machine”.

The position now was that the provision of any facilities for the playing of any game of chance was exempt from VAT: but there fell outside the exemption (and remained within the general charge to...

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