Bingo is a game of matching one thing against another, namely numbers called out against numbers on a card. You are looking for similarity, or for matching things which are treated identically. If you do, you shout "bingo" and celebrate with another cup of tea.

 

Perhaps the top brass in HMRC haven't played much bingo. If they had they might have accepted that virtually identical mechanised bingo machines (and other gaming machines) should all be treated the same for VAT, so that they match.

 

Generally, automated gambling machine supplies are taxable. But the UK has allowed certain classes of machine to fall into the general definition of gambling, which is exempt. This is because, for a variety of arcane reasons, the definition of the exceptions to gambling, which member states of the EU are allowed to carve out from the definition of gambling, do not stretch far enough to exclude such machines from being exempt. The problem with this is that the differences between the machines that generate ostensibly taxable supplies and those that generate exempt supplies are not equally visible to the punter. The differences may relate to different classifications under gambling legislation (about which the punter would not care), differing prices to participate, different ways in which the machine generates the odds, or differences in the maximum payout (all of which may be more noticeable to the punter). Bizarrely, it can even include whether the machine comes in one unit, or has an element of remote control. Such distinctions can, under UK VAT law, make the difference between a VATable supply and an exempt supply.

 

However, the majority of such supplies are standard rated, covering the majority of the gaming machine market.

 

Nothing daunted by that fact, Rank decided to challenge this discrepancy. They argued that the taxable supplies were treated unfairly as against very similar exempt supplies. This was not a level playing field. Or, to put it in the jargon, it offended against "fiscal neutrality". However, this could not mean that all such supplies should be taxed, as would be the common sense answer given the majority of the supplies were on the taxable side of the dividing line. That would deprive the machines that were legally exempt from the benefit of their more favourable position. The only way of correcting the perceived anomaly was for all the taxable supplies of essentially identical gaming services to be deemed to be exempt.

 

After several UK court decisions supporting this general view, the matter was referred to the ECJ to settle some questions pressed mainly by HMRC.

 

HMRC emphasised that fiscal neutrality could only apply with essentially identical supplies, not merely ones that were very similar. Technical distinctions such as different regulations applicable to fractionally different games were argued as being important. The ECJ disagreed. Slot machines were essentially the same. And the critical aspect for the ECJ was that the "average consumer" would see no difference based on purely regulatory aspects. The average consumer might, however, perceive a real difference if either the stakes or prize money varied considerably. One had to look at whether that distinction would give rise to a different view of the product on the part of the punter. That is an important legal test which HMRC may come to rue in the future, and which has the capacity to make "fiscal neutrality" a serious weapon for taxpayers.

 

The ECJ was also unimpressed with the argument that fiscal neutrality should only apply if the taxpayer could prove that the products competed with each other in such a manner as to give rise to a distortion of the market place if they were differently taxed. For the ECJ it was enough that the products appeared sufficiently similar that distortion might arise. There was no need to obtain proof of that being the case in each example to win the argument. This removes a potentially major barrier to success for tax payers.

 

One curious aspect of this case was that the UK legislation only taxed gaming machines where the machine itself determined the odds and chose the winning result. Such legislation seemed not to take into account a machine that is controlled remotely by another machine which generates those odds. Once HMRC got wind of this technological development they changed the legislation. But in the meantime machine operators could say that the remotely controlled machines made exempt supplies (incredible as that may seem), and that therefore there was a fiscal neutrality argument in favour of the machines that were self contained, and should, so the argument went, have been allowed also to be exempt, simply because of the invention of an essentially similar system which happened not to be configured just as the legislation envisaged. The ECJ did not support HMRC on this aspect either. That HMRC moved quickly to shut the floodgates could not save them from the consequences while the gates were open. Perhaps the ECJ was unwilling to save HMRC from its limited and unimaginative drafting of legislation.

 

There was a consolation prize for HMRC. Rank argued that they could apply fiscal neutrality based on HMRC's habit of allowing exemption to be applied in cases where they had been wrong to, and the comparative supply in question ought to have been taxed. The ECJ held that the argument could only extend to genuine conflicts in the taxation status, not where a mistaken distinction had been allowed. Not enough, one thinks, for HMRC to shout "bingo" at the top of their voice.

 

The immediate ramifications of the case are serious enough, but there is for HMRC a frightening prospect of being attacked regularly under the heading of fiscal neutrality, where tax payers can spot similarities in differently taxed products.