Rank Group Plc and Another
| Jurisdiction | UK Non-devolved |
| Judgment Date | 30 June 2021 |
| Neutral Citation | [2021] UKFTT 241 (TC) |
| Court | First-tier Tribunal (Tax Chamber) |
[2021] UKFTT 241 (TC)
Judge Greg Sinfield
Jonathan Peacock QC and Valentina Sloane QC, instructed by Deloitte LLP, appeared for the appellants
George Peretz QC and Eric Metcalfe, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Exemption – Betting and gaming – Whether taxation of supplies of slots games on certain slot machines when supplies of slots games on other machines and online were exempt breached EU principle of fiscal neutrality – Appeal allowed.
The FTT ruled that the different taxation of different types of slot machines and of slot machine games compared to online games was a breach of fiscal neutrality. The case concerns the VAT exemption for gambling in the period before 1 February 2013.
This appeal concerned claims made by the Rank Group plc and Gala Leisure Group Ltd VAT groups for VAT overpaid on certain machine games. Gala Leisure assigned its claim to 2016 G1 Ltd.
VAT was, the appellants claimed, overpaid in the period 18 December 2005 to 31 January 2013. During this time a VAT exemption applied to online gaming and to certain categories of slot machine while other slot machines were subject to VAT. As an example of the issue highlighted by the appellants, some machine games were taxable whereas the online version of the same game was exempt. At the material time the scope of the VAT exemption was framed by reference to how gambling games were categorised for regulatory purposes.
The FTT referred to the games as “Taxed Games” and “Exempt Games” and the decision sets out the different types of game under consideration and their VAT treatment at para. 41–76.
The appellants argued that the different taxation represented a breach of fiscal neutrality. Rank Group has litigated the VAT exemption for gaming machines extensively and the ECJ decision, R & C Commrs v Rank Group plc (Joined Cases C-259/10 and C-260/10) [2011] BVC 389 (which concerned bingo and slot machines) is a lead authority on fiscal neutrality.
The FTT reviewed ECJ case law on fiscal neutrality. It noted (para. 19) that “in assessing the similarities between the games, the focus is on the nature or character of the game itself and not the location and setting in which it takes place. Also, factors such as accessibility, the gambling environment, the gambling culture and the different circle of user are to be disregarded unless they affect the nature or character of the game itself.”
HMRC argued that the different VAT treatment did not breach fiscal neutrality because the Taxed Games and Exempt Games were neither identical nor similar from the average consumer's point of view.
The FTT allowed the appeal, finding that the games were similar from the point of view of the average player. The basis of the FTT's findings may be summarised as follows:
- HMRC provided evidence that the customer bases for Taxed and Exempt games were demographically different (para. 120). HMRC inferred from this that some customers preferred online games and, therefore, that the average consumer did not regard games played on a physical machine as similar to online games (para. 121). However, the FTT considered that these demographic differences should be viewed with caution (para. 123) and that the average player was the typical player of slot games in all formats (para. 124).
- The FTT accepted the appellants' evidence that the various games under consideration were identical or substantially similar (para. 127) and found that the differences in the ways of accessing the games online were not material enough to change the fundamental nature of the slots game from the point of view of the average player (para. 128).
- Although the different categories of game had different stake and prize money, the FTT found that HMRC had not produced any evidence that any differences between the stakes and prizes in different slots games had any impact on the average player's choice of which game to play (para. 131).
This case marks the latest development in The Rank Group plc (and other gambling businesses)'s dispute with HMRC regarding the historic VAT treatment of different categories of game. Until 31 January 2013 games were subject to VAT or exempt based upon their categorisation under legislation regulating the gaming industry, this approach resulted in similar games being taxed differently. From 1 February 2013 the VAT exemption was reformed and widened and the games became subject to machine games duty.
[1] During the period 18 December 2005 to 31 January 2013 (“the Relevant Period”), the Rank Group plc (“Rank”) and the Gala Leisure Limited (“Gala”) VAT groups operated gaming machines (“slot machines”) installed in bingo clubs, casinos and gaming machine arcades. Supplies of slots games on those machines were chargeable to VAT at the standard rate during the Relevant Period while supplies of slots games on certain other machines and online were exempt.
[2] In R & C Commrs v Rank Group plc (Joined Cases C-259/10 and C-260/10) [2011] BVC 389 (“Rank ECJ”), which concerned slot machines, the Court of Justice of the European Union (“ECJ”) confirmed that the principle of fiscal neutrality precludes treating similar supplies of services, which are thus in competition with each other, differently for VAT purposes. The ECJ considered how the national court should approach the question of whether two games are similar for the purpose of the principle of fiscal neutrality. I discuss the approach in more detail below but, in summary, two supplies of services are similar where they have similar characteristics and meet the same needs from the point of view of a typical or average consumer and any differences between them do not have a significant influence on the decision of the average consumer to use one service rather than the other.
[3] Rank ECJ concerned slot machines which were known as section 16/21 machines and section 31/34 machines by reference to the provisions of the Gaming Act 1968 and the Lotteries and Amusements Act 1976 that applied to them. With effect from 1 September 2007, the Gambling Act 2005 introduced new categories for gaming machines. Both Rank and Gala operated section 16/21 machines and section 31/34 machines before 1 September 2007 and Rank operated Category B1, B3, C and D machines from that date. Rank and Gala accounted for VAT on their supplies of games on those slot machines (“the Taxed Games”) during the Relevant Period. At the same time, supplies of slots games on electronic lottery ticket vending machines (“ELTVMs”)/B3A lottery machines and online (“the Exempt Games”) were exempt from VAT.
[4] Rank and Gala made claims, by way of voluntary disclosures, for VAT accounted for on their supplies of the Taxed Games. The basis of the claims was that the difference in VAT treatment of the Taxed Games and the Exempt Games during the Relevant Period was contrary to the EU principle of fiscal neutrality. HMRC rejected the voluntary disclosures on the ground that there were material differences between the Taxed Games and the Exempt Games, in particular those offered online, and any differential treatment did not breach the principle of fiscal neutrality.
[5] Rank and Gala appealed to the First-tier Tribunal (“FTT”). Gala subsequently assigned its rights in the appeal to the Second Appellant, 2016 G1 Limited (“G1”).
[6] Part of Rank's claim related to supplies of games on fixed odds betting terminals, later known as Category B2 machines, (together “FOBTs”) operated by Rank in its Grosvenor casinos between 2011 and 2013. In Done Brothers (Cash Betting) Ltd [2018] TC 06608 (“Done Brothers FTT”), the FTT decided that, during the Relevant Period, slots games on FOBTs were similar to and should be given the same exempt VAT treatment as slots games online and on Category B3A machines. That decision was upheld by the Upper Tribunal in R & C Commrs v Rank Group plc [2020] BVC 530 (“Rank Done Brothers UT”). HMRC did not appeal the Upper Tribunal's decision.
[7] HMRC accept that, following Rank Done Brothers UT, supplies of slots games and roulette on FOBTs operated by Rank in its Grosvenor casinos between 2011 and 2013 were exempt and, to that extent, Rank's appeal must be allowed. In the rest of this decision, “Taxed Games” does not refer to the games played on FOBTs in Grosvenor casinos between 2011 and 2013 in respect of which the appeal is allowed. From 1 September 2007, slots games became available to play on FOBTs and, following Done Brothers FTT, games played on FOBTs were also Exempt Games.
[8] I am not asked to determine the amounts that would be repayable if the appeals succeed. The parties agree that determination of the quantum of the claims can be deferred until after the issue of the VAT treatment of the Taxed Games has been determined.
[9] Accordingly, the primary issue in this appeal is whether, during the Relevant Period, the Taxed Games were “similar”, within the meaning given by the ECJ Rank ECJ, to the Exempt Games, such that the different VAT treatment of the former is contrary to the principle of fiscal neutrality.
[10] On the basis of the facts found and for the reasons set out below, I have decided that the Taxed Games were materially similar to the Exempt Games during the Relevant Period and supplies of the Taxed Games should have been treated as exempt for VAT purposes. Accordingly, subject to the quantum of the claims being agreed or determined by the Tribunal, the appeals by Rank and G1 are allowed.
[11] There was no dispute between the parties at the hearing as to the applicable law. Before the hearing, the parties had produced an agreed note which helpfully set out relevant legislation and case law relevant to the determination of these appeals and which were common ground between the parties. What follows is taken from...
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