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Rank Group Loses UK Supreme Court VAT Appeal

by Jason Gorringe, Tax-News.com, London

09 July 2015


The UK's Supreme Court has rejected an appeal brought by the Rank Group against HM Revenue and Customs's decision to levy value-added tax from takings from certain slot machines.

The key issue was whether Rank was exempt from VAT because it had introduced technology that separated the Random Number Generator (RNG), which is the system for producing numbers for the machine's software to determine the outcome of a bet, from the machines themselves.

The appeal concerned "multi-terminal" systems. In each case the RNG might be housed in a separate box or hung on the wall, but was connected by a wire to the playing terminals. Up to six playing terminals might be served by a single remote RNG. Each terminal was designed to be used with the RNG obtained from the manufacturer of the terminal, the terminals and RNGs were sold together, and each RNG was "manufacturer-specific." Though linked to a single RNG, each terminal could be operated independently and could offer the same or different games.

The key issue was whether the takings resulted from the provision of a "gaming machine," as defined. The disputed element of the definition of "gaming machine" was whether "the element of chance in the game is provided by means of the machine." If this was not satisfied, then the takings from the disputed machines were exempt from VAT.

It is common ground that a slot machine is a "gaming machine" for VAT purposes when the element of chance is provided by a component that forms part of the body of the machine on which the game is played. Rank had argued because these two elements were separate that supply should be exempt.

The VAT and Duties tribunal concluded, in favor of Rank, that the disputed machines were not "gaming machines" because the RNG was not part of any terminal and the element of chance was not provided by the machine containing the slot. The High Court agreed. The Court of Appeal overturned this decision; it considered that each terminal and the single RNG could together constitute a machine. Rank appealed to the Supreme Court but it dismissed the appeal, in a ruling released on July 8, 2015.

The Supreme Court said the question was how the element of chance is provided "in the game." It said the definition implies an active function in the game as it is played, rather than the mere passive transfer of information to the player. Noone suggested any good policy reason for distinguishing between on the one hand, embedded software or a single-terminal RNG, and on the other a multi-terminal RNG, the Court said.

"The overall purpose is the creation of a game of chance for the player, in which purpose both the terminal and the RNG play, and are designed to play, essential and connected functions... The terminal is useless for playing the game without the RNG. Where the RNG is linked to a single terminal, the tribunal saw nothing wrong in principle in viewing them as together being a single machine for playing the game. Similarly, where the RNG serves several terminals, it is appropriate to treat the combined apparatus as a 'machine.'"

TAGS: tax | value added tax (VAT) | VAT legislation | law | United Kingdom | legislation | VAT case law

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