No tax exemption for operators of slot machines

In its ruling of 10 November 2010, XI R 79/07, the Federal Fiscal Court (Bundesfinanzhof, BFH) ruled that the turnover of a commercial operator of slot machines is not tax-exempt under Section 4 No. 9 letter b of the German Value Added Tax Act (Umsatzsteuergesetz, UStG) and that this provision does not violate either EU law or the German Constitution.

According to § 4 No. 9 letter b UStG in the new version applicable as of 6 May 2006, tax-exempt are "the turnover falling under the Racing Betting and Lottery Act. Turnover covered by the Racing Betting and Lotteries Act which is exempt from racing betting and lottery tax or from which this tax is generally not levied is not exempt."

In the present appeal proceedings, which concern the turnover of a limited liability company from the operation of slot machines in an amusement arcade, the BFH had doubts as to whether this regulation was in line with the VAT Directive. It had therefore suspended the appeal proceedings and asked the Court of Justice of the European Union (CJEU) whether Article 135(1)(i) of Directive 2006/112/EC is to be interpreted as permitting the Member States to adopt a rule under which only certain (racing) bets and lotteries are exempt from tax and all 'other games of chance with monetary stakes' are excluded from the tax exemption?" (cf. decision of 17 December 2008 XI R 79/07 and the related press release No. 16/2009 of 18 February 2009). The ECJ answered this question in the affirmative in its ruling of 10 June 2010 C 58/09.

The appellant was of the opinion that, irrespective of the question referred for a preliminary ruling by the ECJ, an assessment of tax on turnover from the operation of slot machines in amusement arcades violated both European law and German constitutional law. The BFH did not agree. In particular, it disagreed with the appellant's view that the VAT assessment was unlawful because commercial operators of slot machines could not pass on the VAT to the end consumers (players). It also denied a violation of the principle of neutrality under VAT law as well as of the general principle of equality (Article 3 (1) of the Basic Law), which the appellant had asserted because of the treatment of the turnover of public casinos from the operation of slot machines.

Ruling of the BFH of 10.11.10. Ref.: XI R 79/07


QSource: Press release of the BFH


Goldberg Attorneys at Law 2011

Attorney at Law Michael Ullrich, LL.M. (Information Law)