Different VAT treatment of online gambling versus physical (offline) gambling in breach of EU law?

In a recent ruling, the Tax Court of Muenster raised doubts with respect to the EU principles of fiscal neutrality on the VAT liability arising in connection with revenues from terrestrial (physical) gambling machines as opposed to the existing VAT exemption available for online gambling.


Article 135(1)(i) of the VAT Directive states that the organization or operation of betting, lotteries and other forms of gambling and gambling machines is in principle exempt from VAT, although Member States remain responsible for determining the conditions and scope of this exemption.

During proceedings for suspension of payment, the appellant enterprise – which operates gambling halls in which slot machines are installed (terrestrial gambling machines) - took the view that it suffered disadvantages compared to virtual online games due to changes allowed by law since 1 July 2021: Virtual slot machine gambling is subject to the German Race Betting and Lottery Act and thus exempt from VAT as provided in Sec. 4 No. 9 (b) VAT Act.

According to the local tax office, who charged VAT on the gaming revenues of the appellant, the German lawmakers, at the time of the amendment of the statutes, had dealt with this issue in detail in its official memorandum on the reasons of the amendment of the statutes and apparently came to the conclusion that there were significant differences between online gambling and physical gambling machines.


The Tax Court of Muenster, however, granted suspension of enforcement and expressed doubts as to the conformity of the divergent VAT treatment of both forms of gambling as of 1 July 2021. Upon summary review and after first preliminary examination the court found that there was a breach of the principle of neutrality and the applicant might therefore directly invoke tax exemption under Article 135(1)(i) VAT Directive.

In the opinion of the court there is a competitive situation here and in case of virtual gambling the player is given the feeling that he is playing in a traditional casino venue rather than in a virtual environment. For the so-called average consumer, who is interested in the gaming experience and the achievable gain, it makes no difference at first and thus it should not really matter to him whether he plays virtually or terrestrially.

Moreover, the differences discussed by the German legislator in the legislative process - as far as the regulatory framework of the various gambling services is concerned - are thus irrelevant in light of current ECJ case law. In particular, the Tax Court of Muenster referred to the ECJ decisions The Rank Group (case ref. C-259/10 and C-260/10): These cases were essentially based on the argument that the different types of mechanized cash bingo (MCB) and slot machines were treated differently for VAT purposes although they were comparable, indeed identical, from the consumer’s point of view and that the fact that certain types of MCB and slot machines were subject to VAT were held to be in breach of the principle of fiscal neutrality.

The Muenster tax court went on to point out that the other differences discussed during the legislative process at the time regarding payout ratio, localization, the customer base, and the higher economic efficiency of online offerings are to be clarified further in the course of the main proceedings.


Tax Court of Muenster, ruling of 27 December 2021 (5 V 2705/21 U); the appeal was allowed due to the fundamental importance of the matter. It is currently not known whether an appeal has been filed.

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