Application of such a rule encourages EU private consumers to shop in no or low VAT jurisdictions since if they do so at home they naturally suffer a permanent VAT cost . The easier it is to “ VAT shop ” the more damage will be done to both domestic operators and national exchequers .
Cross border shopping for digitally available services , like betting and gaming ( but also such services as telecoms and broadcasting ) present no real barriers . Little surprise then that the basic origin principle ( Article 45 ) in the case of such services is replaced on a general basis by the “ destination ” principle . Accordingly Article 58 provides that the place of supply of “ electronically supplied services ” to non taxable persons ( i . e . private consumers ) is where the consumer is
“ established , has his permanent address and residence or usually resides …”
Article 59a of the VAT Directives gives a discretion to Member States if application of the Article 58 destination rule leads to the place of supply being outside ( not inside ) the EU , for example because the consumer resides in a third country . If the Service is actually used and enjoyed in a Member State , then to that extent , the supply may be pulled into that Member State . The UK has exercised this discretionary power for certain services , including electronically supplied ones .
Let us return to what may be caught as an “ electronically supplied service ”.
Annex II of the VAT Directive provides that it
“ includes games of chance and gambling games …”
That does not mean that such gambling and games are always electronically supplied . The EU VAT Committee is of the view that not all distance gambling is necessarily electronically supplied .
It has to be remembered of course that the jurisdiction to the tax at the country of destination ( Article 58 ) or of use and enjoyment ( Article 59a ), is of little consequence unless the gambling is removed from the scope of exemption . As has been seen , the exemption is particularly elastic , so Member States have moved to tax certain betting and gaming , including ( not surprisingly in view of the protectionist policy drivers ) by reference to whether it is supplied electronically . In the UK exemption remains in place , even if electronic supply is made .
Is the gambling electronically supplied The VAT Regulation provides more detailed guidance on implementation of the VAT Directive and provides at its Article 7.1 that
“ Electronically supplied services [ are ] essentially automated and involving minimal human intervention …”
It follows that if human intervention is more than minimal and where the process is not automatic , then the service is not electronically supplied . The destination principle will not then apply so that the origin one ( in Article 45 ) of the Directive remains in place . It follows then that where a gambling service is not electronically supplied , the place of supply remains where the operator is located so that the incentive to go VAT shopping remains .
Application of the electronic supply criterim is not itself without difficulty . It has , for example , been argued that fixed odds betting is not an automated process and requires significant human intervention .
It is quite unrealistic to expect detailed legislative / regulatory provisions of a binding nature to be promulgated to secure harmony at an EU level . The most that can realistically be hoped for is guidance from the EU VAT committee . However , whilst the EU Committee may give such guidance in due course , this is , at its highest , only ever of persuasive authority : it is not binding . Resolving the question requires a technical evaluation , itself allowing a degree of appreciation and so inevitably a difference in approach . Given also the margin of discretion allowed to Member States in the scope of exemption , there will remain differences in application between Member States . Test cases may be taken to the Court of Justice of the European Union ( ECJ ) but it should be remembered that the Court can only go so far as to lay down the principles of general application in determining the degree of discretion available to Member States and the right approach to its exercise . Matters of detailed factual and technical evaluation will be left to national courts . The decision of a Member State national court does not bind another Member State .
It will be remembered that for both non electronically supplied services and ones which are so supplied , including gambling , Member States have a power under Article 59 ( a ) of the Directive to relocate the place of supply of services if that would otherwise be outside the EU . The relocation takes the
European Gaming Lawyer | Autumn Issue | 2016 | 13