INTERNATIONAL TAX PLAZA - CJEU rules in Case C-98/14 Berlington Hungary and Others (Freedom to provide services - gambling taxes - Principles of legal certainty and of the protection of legitimate expectations)

Details: Published: 11 June 2015

(June 11, 2015)

On June 11, 2015 the European Court of Justice (CJEU) ruled in Case C‑98/14 Berlington Hungary Tanácsadó és Szolgáltató kft, Lixus Szerencsejáték Szervező kft, Lixus Projekt Szerencsejáték Szervező kft, Lixus Invest Szerencsejáték Szervező kft and Megapolis Terminal Szolgáltató kft versus Magyar Állam (Hungarian State) (ECLI:EU:C:2015:386).

1. Is non-discriminatory legislation of a Member State compatible with Article 56 TFEU if, by a single measure and with no transitional period, it introduces a five-fold increase in the previous amount of direct tax, known as gambling tax, to be paid on slot machines operated in amusement arcades and, in addition, introduces a tax on gambling at a percentage rate, in such a way that it restricts the activity of operators of games of chance who run amusement arcades?

2. May Article 34 TFEU be interpreted as meaning that its scope covers non-discriminatory legislation of a Member State which, by a single measure and with no transitional period, introduces a five-fold increase in the previous amount of direct tax, known as gambling tax, to be paid on slot machines operated in amusement arcades and, in addition, introduces a tax on gambling at a percentage rate, in such a way that it restricts the importation of slot machines into Hungary from elsewhere in the European Union?

3. If questions 1 and/or 2 are answered in the affirmative, may a Member State rely exclusively on the regularisation of the budgetary position in the context of the application of Article 36 TFEU, Article 52(1) TFEU and Article 61 TFEU or where there are overriding requirements?

4. If questions 1 and/or 2 are answered in the affirmative, having regard to Article 6(3) TEU, must account be taken of the general principles of law, as regards the restrictions imposed by a Member State and the grant of a period of adjustment to new tax rules?

5. If questions 1 and/or 2 are answered in the affirmative, must the judgment in Brasserie du pêcheur and Factortame (Joined Cases C‑46/93 and C‑48/93, EU:C:1996:79) be interpreted as meaning that infringement of Articles 34 TFEU and/or 56 TFEU may give rise to liability for damages on the part of the Member State on the ground that those provisions — because of their direct effect — confer rights on individuals in the Member States?

6. Can Directive 98/34 be interpreted as meaning that a tax provision of a Member State which introduces, in a single step, a fivefold increase in the amount of a direct tax on gambling which has to be paid in respect of slot machines operated in amusement arcades and, in addition, introduces a tax at a percentage rate constitutes a ‘de facto technical regulation’?

7. If question 6 is answered in the affirmative, may individuals of a Member State allege that the Member State has infringed Articles 8(1) and/or 9(1) of Directive 98/34, and therefore failed to fulfil its obligations, thereby giving rise to liability for damages; in other words, is that directive intended to confer rights on individuals? What matters must the national court take into account in order to determine whether the [Hungarian State] has committed a sufficiently serious infringement and what type of claim for damages can such an infringement give rise to?

8. Is non-discriminatory legislation of a Member State compatible with Article 56 TFEU if it prohibits with immediate effect the use of slot machines in amusement arcades, without allowing the operators of games of chance affected a transitional or adjustment period or offering them appropriate compensation, and, at the same time, establishes in favour of casinos a monopoly in the operation of slot machines?

9. Can Article 34 TFEU be interpreted as meaning that it must also be relevant and applicable in the event that a Member State adopts non-discriminatory legislation which, although it does not directly prohibit the purchase of slot machines from elsewhere in the European Union, restricts or prohibits the effective use and operation of such machines in the organisation of games of chance, without allowing the operators of games of chance affected who carry out that activity a transitional or adjustment period or any compensation?

10. If questions 8 and/or 9 are answered in the affirmative, what criteria must the national court take into account to determine whether the restriction was necessary, appropriate and proportionate in the context of the application of Articles 36 TFEU, 52(1) TFEU and 61 TFEU or where there are overriding requirements?

11. If questions 8 and/or 9 are answered in the affirmative, having regard to Article 6(3) TEU, must account be taken of the general principles of law, as regards the prohibitions laid down by a Member State and the grant of a period of adjustment? Must account be taken of fundamental rights — such as the right to property and the prohibition on depriving a person of property without compensation — in connection with the restriction arising in the present case and, if so, in what way?

12. If questions 8 and/or 9 are answered in the affirmative, must the judgment in Brasserie du pêcheur and Factortame (C‑46/93 and C‑48/93, EU:C:1996:79) be interpreted as meaning that infringement of Articles 34 TFEU and/or 56 TFEU may give rise to liability for damages on the part of the Member State on the ground that those provisions — because of their direct effect — confer rights on individuals in the Member States?

13. Can Directive 98/34/EC be interpreted as meaning that a provision of a Member State which, by restricting the use of slot machines to casinos, prohibits their use in amusement arcades constitutes ‘other requirements’?

14. If question 13 is answered in the affirmative, may individuals of a Member State allege that the Member State has infringed Articles 8(1) and/or 9(1) of Directive 98/34/EC and therefore failed to fulfil its obligations, thereby giving rise to liability for damages; in other words, is that directive intended to confer rights on individuals? What matters must the national court take into account in order to determine whether the defendant has committed a sufficiently serious infringement and what type of claim for damages can such an infringement give rise to?

15. Is the principle of EU law applicable according to which the Member States are obliged to pay compensation to individuals for damage resulting from infringements of EU law attributable to the Member States also where the Member State has sovereignty in the area which the adopted legislation concerns? In such a case do fundamental rights and the general principles of law derived from the common constitutional traditions of the Member States also serve as a guide?

The dispute in the main proceedings and the questions referred for a preliminary ruling

· The applicants in the main proceedings are commercial companies which, until the entry into force of the amending Law of 2012, operated slot machines in amusement arcades. They provided their activities using gaming machines mainly from other Member States. A number of their customers were European Union citizens holidaying in Hungary.

· Under the Hungarian legislation in force between 16 August 1991 and 9 October 2012, slot machines could be operated in casinos and in amusement arcades, conditional upon obtaining licences granted by the gambling inspection services. Operators of amusement arcades, such as the applicants in the main proceedings, were required to pay a monthly flat-rate tax the amount of which, up until 31 October 2011, was HUF 100 000 per slot machine.

· The amending Law of 2011 required that from 1 January 2013 slot machines operated in amusement arcades be connected to a central server.

· With effect from 1 November 2011, that Law also introduced a five-fold increase in the previous amount of monthly flat-rate tax in respect of the operation of slot machines installed in amusement arcades, together with a proportional tax in the form of a percentage of the net quarterly revenue from each machine. The amount of the tax levied on the operation of slot machines installed in casinos, however, remained unchanged.

· On 30 September 2011, that is on the day following the publication of the amending Law of 2011, the Hungarian Government notified the text of that law to the European Commission, but did not indicate that the tax increases introduced by that law fell within the scope of Directive 98/34. The postponement provided for by Article 9(1) of that directive was not respected.

· The implementation of the slot machine operating system based on a central server, as provided for by the amending Law of 2011, was finally abandoned when the Hungarian Parliament adopted, on 2 October 2012, on a proposal of the Hungarian Government dated 1 October 2012, the amending Law of 2012, which prohibited the operation of slot machines outside casinos. To justify such a prohibition, the legislature cited the prevention of crime and gambling addiction and public health considerations related to the prevention of gambling addiction. That law came into force on 10 October 2012, the day following its publication. The next day, on 11 October 2012, licences to operate slot machines in amusement arcades automatically expired without the legislature having provided for compensation for the operators concerned.

· On 1 October 2012, the Hungarian Government notified the Commission of the draft amending Law of 2012, classifying it as a financial measure within the meaning of Article 1(11) of Directive 98/34. Pursuant to Article 10(4) of that directive, no postponement was applied. On 15 October 2012, the Commission informed the Hungarian Government that it disagreed with that classification. That Government then cited the existence of urgent reasons within the meaning of Article 9(7) of that directive.

· The applicants in the main proceedings brought an action against the Hungarian State before the Fövárosi Törvényszék (Budapest Municipal Court) seeking compensation for the damage they claim to have suffered, resulting from the application of certain provisions of the amending Law of 2011 and the amending Law of 2012. According to the applicants, the alleged damage results from the imposition of gambling taxes which they have paid, the depreciation of their slot machines and the expenses incurred in the main proceedings.

· The Hungarian State contends that the action should be dismissed, challenging both the legal basis of that action and the amounts claimed by the applicants in the main proceedings.

· By order of 13 February 2014, the Fővárosi Törvényszék stayed the proceedings and referred the following questions to the Court for a preliminary ruling:

The CJEU ruled as follows:

1. National legislation such as that at issue in the main proceedings, which, without providing for a transitional period, introduces a five-fold increase in the flat-rate tax to be paid on slot machines operated in amusement arcades and, in addition, introduces a proportional tax on that activity, constitutes a restriction on the freedom to provide services guaranteed by Article 56 TFEU provided that it is liable to prohibit, impede or render less attractive the exercise of the freedom to provide the services of operating slot machines in amusement arcades, this being a matter which it is for the national court to determine.

2. National legislation such as that at issue in the main proceedings, which, without providing for either a transitional period or compensation for operators of amusement arcades, prohibits the operation of slot machines outside casinos constitutes a restriction on the freedom to provide services guaranteed by 56 TFEU.

3. Restrictions on the freedom to provide services which may result from national legislation such as that at issue in the main proceedings can only be justified by overriding reasons in the public interest if the national court finds, after an overall assessment of the circumstances surrounding the adoption and implementation of that legislation:

– that it actually pursues, primarily, objectives relating to the protection of consumers against gambling addiction and the prevention of criminal and fraudulent activities linked to gambling; the mere fact that a restriction on gambling activities incidentally benefits, through an increase in tax revenue, the budget of the Member State concerned, does not prevent that restriction from being considered actually to be pursuing, primarily, those objectives;

– that it pursues those goals consistently and systematically, and

– that it meets the requirements arising from general principles of EU law, in particular the principles of legal certainty and the protection of legitimate expectations and the right to property.

4. Article 1(11) of Directive 98/34/EC of the European Parliament and of the Council of 22 June 1998 laying down a procedure for the provision of information in the field of technical standards and regulations and of rules on Information Society services, as amended by Council Directive 2006/96/EC of 20 November 2006, must be interpreted as meaning that:

– the provisions of national legislation that introduce a five-fold increase in the flat-rate tax to be paid on slot machines operated in amusement arcades and, in addition, introduce a proportional tax on that activity, do not constitute ‘technical rules’ within the meaning of that provision, and that

– the provisions of national legislation that prohibit the operation of slot machines outside casinos constitute ‘technical rules’ within the meaning of that provision, the drafts of which must be communicated in accordance with the first subparagraph of Article 8(1) of that directive.

5. Article 56 TFEU is intended to confer rights on individuals, in such a way that its infringement by a Member State, including as a result of its legislative activity, gives rise to a right of individuals to obtain from that Member State compensation for the damage suffered as a result of that infringement, provided that that infringement is sufficiently serious and there is a direct causal link between that infringement and the damage sustained, this being a matter which it is for the national court to determine.

6. Articles 8 and 9 of Directive 98/34, as amended by Directive 2006/96, are not intended to confer rights on individuals, in such a way that their infringement by a Member State gives rise to a right of individuals to obtain from that Member State compensation for the damage suffered as a result of that infringement on the basis of EU law.

7. The fact that national legislation such as that at issue in the main proceedings concerns an area falling within the competence of the Member States does not affect the answers to the questions raised by the referring court.

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