The Rank Group Plc
| Jurisdiction | UK Non-devolved |
| Judgment Date | 11 December 2009 |
| Date | 11 December 2009 |
| Court | First Tier Tribunal (Tax Chamber) |
[2010] TC 00301.
[2009] UKFTT 363 (TC).
Judge Theodore Wallace (chairman), A J Ring CTA (Fellow).
Dr Paul Lasok QC and Valentina Sloane, counsel, instructed by Deloitte LLP, for the Appellant
Christopher Vadja QC, George Peretz and Laura Elizabeth John, counsel, instructed by the Solicitor to the Commissioners for HM Revenue and Customs, for the Respondents
The following cases were referred to in the judgment:
Finanzamt Gladbeck v LinneweberECASVAT (Case C-453/02) [2007] BVC 227
Fischer v Finanzamt Donaueschingen ECASVAT (Case C-283/95) [1998] BVC 431
Lex Services plc v C & E Commrs VAT [2004] BVC 53
R (on the application of TNT Post UK Ltd) v R & C Commrs ECASVAT (Case C-357/07) [2009] BVC 389
R & C Commrs v Rank GroupVAT [2009] BVC 598
Community Law - Fiscal neutrality - Exemption - Exclusion of provision of "gaming machines" from exemption - Whether taxed machines similar to exempt machines - Relevance of regulatory regime - Whether fixed odds betting terminals exempt comparators - Whether on facts due diligence defence established to breach of fiscal neutrality - Exemption - Slot machines - Exclusion of "gaming machines" from exemption - Breach of fiscal neutrality - Period of breach - the sixth VAT directive (Directive 77/388), eu-directive 77/388 subsec-or-para B article 13art. 13(B)(f).
This was the second stage of an appeal against a decision of the commissioners to refuse a repayment claim in respect of VAT paid from 1 October 2002 to 5 December 2005 on income from slot machines. The claim was in the sum of £29,959,104 and related to VAT paid on gaming machines covered by the Gaming Act 1968, s. 31 and 34, when income from similar machines within the Lotteries and Amusements Act 1976, s. 16 and the Gaming Act 1968, s. 21 ("s. 16/21" machines) were exempt. In the appellant's view, this infringed the principle of fiscal neutrality under Community law.
The tribunal had earlier decided (No. 20,688; [2008] BVC 2482 and No. 20,777; [2009] BVC 2120) that, from November 2003 at the latest, the UK's law and practice breached the principle of fiscal neutrality in that similar products were taxed differently. This decision was upheld by the High Court ([2009] BVC 598), but permission was given for the commissioners to appeal to the Court of Appeal. The present hearing concerned the period during which the UK was in breach of fiscal neutrality in the taxation of gaming machines and whether the facts for any defence of due diligence in remedying the breach had been established. These questions, which had not been determined by the tribunal, were not covered by the appeal to the High Court.
The question of whether the disparity of treatment extended over the whole period of the claim from October 2002 involved deciding when exempt comparator machines were first used by the appellant or by someone else. Apart from s. 16/21 machines, it was necessary to determine whether Fixed Odds Betting Terminals ("FOBTs") were similar to taxed machines within the Gaming Act 1968, s. 31 and 34 and were thus relevant comparators. The parties agreed that if FOBTs were relevant comparators, then the defence of due diligence did not arise.
The tribunal noted that Green Shield Stamp machines were introduced as early as January 1976. It was not clear whether these were s. 34 or 16 machines. However, there were regular exhibitions at which s. 16 machines were shown and there were several different types of s. 16 machines in operation before the claim date of 1 October 2002. FOBTs were introduced in the UK in 1998 and, in the opinion of the tribunal, these too were comparator machines. It followed that exempt comparators, whether s. 16/21 machines or FOBTs, were in commercial use for the entire period covered by the claim. Even if FOBTs were not comparators and the relevant knowledge was that of the commissioners, the UK did not act with due diligence to remedy the situation. However, on the basis of the findings of the tribunal that FOBTs were relevant comparators and that the relevant knowledge for the purposes of due diligence included both the Gaming Board and the commissioners, the case for the appellant was even stronger. The facts necessary for any defence of due diligence were not established.
Held, allowing the company's appeals:
1. A range of machines within s. 16 or 21 was in commercial use from as far back as the late 1970s. Exempt comparators were therefore in use for the entire period covered by the claim.
2. There was in law no defence of due diligence to an infringement of fiscal neutrality.
3. The requirement to comply with the sixth VAT directive was an obligation of the UK. The relevant knowledge for any defence of due diligence was not limited to the commissioners, but included the Gaming Board, which was generally aware of all the comparator machines.
4. The commissioners knew of FOBTs at all relevant times and must have been aware of s. 16/21 machines at least from the first half of 2004. The fact that the commissioners were unaware of the exempt comparators before 2004 was itself a failure by them and the UK to exercise due diligence.
5. Even when the commissioners became aware of the existence of exempt comparators other than FOBTs, the UK did not act with due diligence to ensure compliance with the principle of fiscal neutrality.
1. This is stage 2 of the appeal against the decision to refuse a repayment claim in respect of VAT paid from 1 October 2002 to 5 December 2005 on income from slot machines. This decision concerns the period during which the United Kingdom was in breach of the principle of fiscal neutrality in the taxation of gaming machines and whether the facts for any defence of due diligence in remedying the breach had been established.
2. The claim was in respect of gaming machines known as Jackpots covered by Gaming Act 1968section 31 of the Gaming Act 1968 and gaming machines known as Amusements with Prizes ("AWP") covered by section 34 of that Act. The claim was for repayment of £29,959,104. The basis of the claim was that the exclusion from exemption of income from gaming machines covered by Gaming Act 1968sections 31 and 34 of the Gaming Act 1968, by reason of Note (1)(d) to Group 4 of Value Added Tax Act 1994 schedule 9Schedule 9 to the VAT Act 1994 because of the definition of "gaming machine", when income from similar machines within Gaming Act 1968section 21 of the Gaming Act 1968 and Lotteries and Amusements Act 1976section 16 of the Lotteries and Amusements Act 1976 were exempt, infringed the principle of fiscal neutrality under Community law. The Appellant also relied on the exemption from VAT of income from Fixed Odds Betting Terminals ("FOBTs"). eu-directive 77/388 subsec-or-para B article 13Article 13(B)(f) of the Sixth Directive exempted betting, lotteries and other forms of gambling "subject to conditions and limitations laid down by each Member State."
3. In Decision No. 20,777 reported at [2008] V&DR 304; [2009] BVC 2120 we decided that from November 2003 at the latest United Kingdom law and practice were prima facie in breach of the principle of fiscal neutrality in that similar products were taxed differently. November 2003 was the date when Star City Casino opened using Cadillac Jack machines covered by Gaming Act 1968section 21 of the Gaming Act 1968. In that decision we held over for further evidence the question whether the disparity in treatment extended back over the whole period of the claim.
4. The appeal by the Respondents against that decision was dismissed by Mr Justice Norris in the Chancery Division on 8 June 2009 [2009] BVC 598. On 11 August 2009 the Court of Appeal gave permission to appeal against the decision of Mr Justice Norris.
5. We also held over the questions whether there is a defence to a prima facie breach of fiscal neutrality if it is shown that the United Kingdom acted with due diligence in responding to the development of exempt machines by amending the law to end the disparity in treatment and whether on the facts the United Kingdom had acted with due diligence. These questions which had not been determined by the Tribunal were not covered by the appeal to the Chancery Division.
6. The question as to whether the disparity in treatment extended over the whole period of the claim involves deciding when exempt comparator machines came onto the market. This is not confined to machines operated by the Appellant. Apart from machines covered by Gaming Act 1968section 21 of the Gaming Act 1968 and Lotteries and Amusements Act 1976section 16 of the Lotteries and Amusements Act 1976, which we refer to as "section 16/21 machines", it involves consideration of whether FOBTs were similar to taxed machines within Gaming Act 1968sections 31 and 34 of the Gaming Act 1968 and were thus relevant comparators. In relation to the period of disparity of treatment, FOBTs are not strictly relevant if section 16/21 machines were on the market at the start of the period of the claim. However, since FOBTs were on the market from 1998, if FOBTs were relevant comparators, then the disparity preceded the period of the claim regardless of the section 16/21 machines.
7. If the FOBTs were relevant comparators, Mr Vadja accepted that the defence of due diligence did not arise on the facts.
8. We were asked by the parties to give a decision on the due diligence issue whether or not we concluded that FOBTs were relevant comparators, since a higher Court may come to a contrary conclusion.
9. A further complication arises as to the relevance of evidence of competition to the question whether and when there were relevant comparators on the market. In our earlier decision we concluded that, since the section 16/21 machines met the same needs of consumers as taxed machines, the disparity in treatment did result in a breach of fiscal neutrality without the need to identify distortion of competition or...
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