Opinion of Advocate General Mengozzi, 16 July Case C-182/08. Glaxo Wellcome GmbH & Co. v Finanzamt München II.

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1 Opinion of Advocate General Mengozzi, 16 July Case C-182/08 Glaxo Wellcome GmbH & Co. v Finanzamt München II I Introduction 1. By an action brought on 15 April 2008, the Commission of the European Communities seeks from the Court a declaration that, by maintaining in force fiscal legislation taxing winnings from all types of lotteries, games of chance and betting organised outside the Kingdom of Spain, whereas winnings obtained from certain lotteries, games of chance and betting organised within the Kingdom of Spain are exempted from income tax, the Kingdom of Spain has failed to fulfil its obligations under Community law and, in particular, under Article49 EC and Article 36 of the Agreement on the European Economic Area signed on 2 May 1992 ( the EEA Agreement ). 2 II Legal framework A Community law 2. The first paragraph of Article 49 EC provides: Within the framework of the provisions set out below, restrictions on freedom to provide services within the Community shall be prohibited in respect of nationals of Member States who are established in a State of the Community other than that of the person for whom the services are intended. 3. According to Article 36(1) of the EEA Agreement: Within the framework of the provisions of this Agreement, there shall be no restrictions on freedom to provide services within the territory of the Contracting Parties in respect of nationals of EC Member States and EFTA States who are established in an EC Member State or an EFTA State other than that of the person for whom the services are intended. B National legislation 4. Article 7 of Law No 35/2006 of 28 November 2006 on personal income tax and partially amending legislation on the taxation of corporations, non-residents income and wealth ( the law on income tax ) 3 provides as follows: Article 7. Exempted income. The following income is exempted:... (ñ) Winnings from lotteries and betting organised by the public body Loterías y Apuestas del Estado (the Spanish public-law body in charge of lotteries and betting, LAE ) or by bodies or entities of the Comunidades Autónomas (Autonomous Communities), and winnings from draws organised by the Spanish Red Cross or by the Organización Nacional de Ciegos Españoles (the Spanish national association for the blind, ONCE ) However, income from lotteries, games of chance or betting organised by other national or foreign bodies, including those established in Member States of the European Union or the European Economic Area, is added to the taxable amount and subject to progressive rates of taxation (Articles 33(1), 45 and 63(1) of the law on income tax, as amended by Article 67 of Law No 51/2007 of 26 December 2007 on the general State budget for ). III Pre-litigation procedure 6. By letter of formal notice of 4 April 2006, the Commission informed the Spanish Government that it regarded the fiscal treatment under the Spanish legislation of winnings from lotteries, games of chance and betting organised outside the Kingdom of Spain as incompatible with Article 49 EC and Article 36 of the EEA Agreement, in so far as such winnings are taxed more heavily than winnings from certain Spanish lotteries and games, and invited that Government to submit its observations on that matter. 1. Original language: French. 2. OJ 1994 L 1, p Published in the Boletín Oficial del Estado of 29 November Published in the Boletín Oficial del Estado of 27 December 2007, p

2 7. In its response of 13 June 2006, the Spanish Government claimed that the exemption at issue applies only in certain cases and is connected with the particular nature of certain organising entities. There is no discrimination since organisers of lotteries established in Spain are generally in the same situation as those which are not established in Spain. By way of justification for the exemption at issue, the Spanish Government listed the combating of the harmful effects of that type of activity and the broad discretion enjoyed by the Member States for the purpose of regulating that form of gambling. 8. On 15 December 2006, the Commission issued a reasoned opinion calling on the Kingdom of Spain to adopt the measures necessary to comply with that opinion within two months of the latter s notification. 9. By letter of 22 February 2007, the Spanish Government informed the Commission that it maintained its position. The Spanish legislation at issue does not discriminate on the basis of the nationality, residence or place of establishment of organisers of lotteries or games of chance and is justified on the grounds of protecting consumers and the social order. 10. The Commission, having noted that the Kingdom of Spain had repeated its initial comments and had not adopted measures to comply with the reasoned opinion within the prescribed time-limit, decided to bring the present action. AG IV Forms of order sought by the parties 11. The Commission claims that the Court should: declare that, by maintaining in force fiscal legislation taxing winnings from all types of lotteries, games of chance and betting organised outside the Kingdom of Spain, whereas winnings obtained from certain types of lotteries, games of chance and betting organised within the Kingdom of Spain are exempted from income tax, the Kingdom of Spain has failed to fulfil its obligations under Community law and, in particular, under Article 49 EC and Article 36 of the EEA Agreement, 5 order the Kingdom of Spain to pay the costs. 12. The Kingdom of Spain contends that the Court should: dismiss the action; order the Commission to pay the costs. V The failure to fulfil obligations A Summary of the arguments of the parties 13. The Commission claims that, in the light of the Court s case-law on the freedom to provide services and, in particular, the judgment in Lindman, 6 the Spanish provisions in question are contrary to Article 49 EC, in that they discriminate without justification against foreign lottery organisers, since the latter s products, if sold to Spanish residents, give rise to a fiscal burden which does not apply in the case of the equivalent products of the Spanish organisers listed in Article 7(ñ) of the law on income tax. 14. Though it is true that the exemption at issue does not cover all organisers of lotteries and games of chance established in Spain and is limited to certain specific entities, the fact remains that that exemption, since it benefits only Spanish entities, is discriminatory in nature. It must be noted, in that regard, that the Spanish legislation is not worded in general terms which enable any body complying with a series of objective criteria to benefit from the exemption. On the contrary, as the Spanish legislation expressly refers to certain national entities, the discrimination is manifest. Hence, the Spanish Red Cross benefits from the exemption, but not the French Red Cross. Consequently, it is incorrect to claim, as does the Spanish Government, that the exemption at issue was established in favour of prizes from certain specific entities and neither nationality nor resident status was a decisive factor. 15. According to the Court s case-law, 7 the discretion enjoyed by the Member States to regulate that type of activity does not make it possible to justify the legislative provision at issue. Indeed, that legislation, rather than setting out a number of characteristics required for the granting of the favourable tax treatment, restricts the exemption to certain specifically designated entities, even though it allows the provision of similar services by other entities which do not benefit from that favourable tax treatment, including entities of the same kind in other Member States or entities pursuing the same objectives as the Spanish entities referred to in that provision. Moreover, the Commission disputes the assertion that public entities and non-profit-making bodies established in other Member States which pursue social activities are not in the same situation as the beneficiaries of the exemption. In addition, the Kingdom of Spain s reasons for establishing that exemption are such as to support the Commission s argument, because, if those grounds are based on the social nature of the entities and on the absence of profit motive, there is no valid reason for not extending the exemption in question to entities having the same characteristics, but established in the other Member States. 5. I consider it important to note that the French version of the wording of the application, when raising the issue of discrimination, refers to winnings from certain types of lotteries, games of chance and betting which are organised within the Kingdom of Spain and which are exempted from income tax. It should be pointed out that neither the Spanish version of the application nor the Spanish version of the reasoned opinion uses the expression certain types. On the contrary, they merely refer to certain lotteries, games of chance and betting organised within the Kingdom of Spain. Consequently, it is necessary to state that the Commission does not allege that the Kingdom of Spain discriminates only against certain types of gambling. The issue in this case, according to the Commission, is not discrimination associated with the typology of gambling, but, on the contrary, a restriction which applies to all lotteries, games of chance and betting irrespective of their type. 6. Case C-42/02 Lindman [2003] ECR I See, in particular, Case C-67/98 Zenatti [1999] ECR I-7289.

3 16. The Commission adds that the destination of the funds raised by the entities benefitting from the exemption at issue is not relevant for the purpose of precluding the possibility that that exemption is discriminatory in nature. 17. With regard to the economic significance of the contested exemption, the Commission claims, first, that it follows from the Annual Report on Gambling in Spain of 2006, published by the Spanish Interior Ministry, that, according to the percentage share by management type, 40.8% of gambling (in terms of sums wagered) was organised by LAE and ONCE (33.4% and 7.4% respectively), corresponding in 2006 to a total amount wagered of EUR billion, the winnings from which are exempt from income tax. 18. It argues, secondly, that the Spanish legislation exempts from income tax almost all winnings from a particular sector of services provided by organisers established in Spain, namely the organisation of games of chance in which the winnings are deferred in time and a player merely purchases a betting slip or ticket, whereas winnings from the same services provided by organisers established in other Member States are taxed. However, the organisers of that type of games of chance are the most likely to seek to provide their services on a crossborder basis, since the provision of such services, unlike in the case of casinos or slot machines, requires no infrastructure in other countries. Consequently, it is precisely those organisers who are most likely to be the victims of tax discrimination. 19. As regards the reasons which may be invoked by a Member State by way of justification, the Commission first of all argues that, although they must be accompanied, according to settled case-law, 8 by an analysis of the necessity and proportionality of the restrictive measure adopted by that State, the Spanish Government failed in this case to provide any information capable of justifying the measure in question. 20. Moreover, in the light of the case-law in question, that measure is not justified in terms of protecting the social order since there is nothing to suggest that participation in lotteries organised by the public authorities of the other Member States of the European Union or the European Economic Area, or by bodies similar to the Red Cross or ONCE, would have more harmful effects on Spanish citizens than participation in lotteries the winnings from which enjoy the favourable tax treatment in question. Furthermore, in the case of the Kingdom of Spain, there do not seem to be any significant restrictions on the organisation of lotteries, apart from the requirement for administrative authorisation. In addition, it is a public body which is responsible for organising most of the lotteries and gambling in Spain and the advertising carried out in that context is considerable. The Spanish Government s position is thus, at the very least, contrary to the objectives allegedly pursued. 21. The Commission also points out that recourse to a tax exemption measure is not the most appropriate means of attaining the objective pursued by the Spanish Government, which is to discourage games of chance, since that exemption is more likely to encourage individuals to participate in them. 22. With regard to the objectives of preventing money laundering and combating tax evasion, the Commission asserts that it is unable to understand how the tax exemption at issue in this case could help to attain those objectives. Similarly, it claims that it cannot identify any reason why tax evasion or money laundering would increase if the contested exemption were extended to winnings from services provided by bodies of other Member States of the same nature as those covered by that exemption rule. 23. The arguments relating to the control procedures connected with the exemption and aimed at preventing money laundering are likewise incapable of justifying that measure, since the Spanish legislation wholly prevents entities of other Member States of the same nature as those covered by the exemption rule from benefitting from that favoured tax treatment. Those bodies are denied the benefit of the exemption, even if they are willing to fulfil the conditions prescribed by the legislation on preventing money laundering, combating tax evasion and protecting consumers. 24. As regards the need to ensure the protection of consumers in accordance with the rules laid down in Spain, the Commission takes the view that it cannot validly be asserted that such protection is jeopardised by the fact that the lotteries in question are organised by entities established in other Member States. Similarly, it is not reasonable to argue that the extension of the exemption would encourage activities which do not adequately safeguard consumer protection. Indeed, quite apart from the fact that the activities in question are already regulated in each Member State, there are control mechanisms to ensure such protection which are compatible with Community law. 25. In any event, the Spanish legislation is discriminatory in nature and cannot therefore be regarded as compatible with the EC Treaty and the EEA Agreement. 26. The Kingdom of Spain denies that it has failed to fulfil its obligations, contending, primarily, that the tax exemption at issue does not constitute a discriminatory restriction. That exemption, the scope of which is personal in that it is limited to certain public bodies of the State or of the Autonomous Communities, the Spanish Red Cross and ONCE, admittedly results in a difference in treatment as regards those not covered by it. However, that difference in treatment is neither discriminatory nor contrary to the principle of equal treatment, since the entities not covered by the contested provision are not in the same situation as those falling within its scope. 27. The Spanish Government points out that the scope of the exemption does not extend to all winnings from lotteries and games of chance organised in Spain or by entities resident in Spain. Thus, subject to the contested provision, winnings distributed in games of chance organised by resident entities are subject to the same taxation as winnings distributed in games of chance organised by non-residents. Therefore, it cannot be concluded that the contested provision discriminates or is liable to discriminate against organisers of lotteries not established in Spain. 28. The Spanish Government claims that there is no discrimination against non-resident entities of a similar nature to those listed in the Spanish provision at issue, since that provision does not define the scope of the exemption on the basis of certain specific characteristics and 8. Lindman, cited above, paragraph 25.

4 therefore makes no reference to the nationality, residence or place of establishment of the entities. Nevertheless, the Spanish Government confirms several times that the exemptions were introduced on account of certain particular qualities of the organisers, all of which pursue non-profit-making social or charitable activities. As a result, the differences in treatment as compared with other lottery organisers offering equivalent products arise from the fact that the latter (whether Spanish or foreign) do not possess those particular qualities. With regard to those specific characteristics, the Spanish Government asserts that the reasons which led the Spanish legislature to grant that exemption are social in nature and that the entities concerned are non-profit making. 29. With regard to the examples put forward by the Commission, and more specifically that of the organisation in Spain of a lottery by the French Red Cross, the Spanish Government argues in particular that such a situation is completely unrealistic, since that entity has never requested approval for that purpose and does not have in that State a network of sales outlets similar to that available to the entities covered by the provision containing the contested exemption. Therefore, it is evident that the French Red Cross and the Spanish Red Cross are not in a comparable situation. 30. The Spanish Government also examines whether the winners are in a comparable situation. The differences between a Spanish taxpayer, who benefits from the tax exemption on winnings from lotteries and games of chance organised by LAE, ONCE or the Spanish Red Cross, on the one hand, and a taxpayer from another Member State in which those winnings are subject to taxation, on the other hand, are due not to the fact that Spanish tax law provides for a subjective exemption in favour of the entities in question, but to the fact that the tax law of that other State has deemed that that income is subject to income tax. However, such a difference in treatment cannot be regarded as discriminatory within the meaning of the provisions of the Treaty or the EEA Agreement. 31. It submits that the judgment in Lindman, cited above, cannot be applied in this case, since, unlike the Finnish legislation at issue in that case, in principle, the Spanish legislation makes the winnings from games of chance subject to income tax regardless of the place where those games are organised or the place of residence of their organiser. Thus, the contested exemption does not cover all winnings from lotteries and games of chance organised or authorised in Spain, but only winnings distributed by bodies selected on the basis of their particular nature. 32. With regard to the distinction between the two types of games of chance (games of chance in which winnings are deferred in time and games of chance which have an instant result) and the Commission s position that the Spanish legislation exempts from income tax almost all winnings from a specific sector of services provided by organisers established in Spain, namely the organisation of games of chance in which winnings are deferred in time, the Spanish Government submits that that distinction is irrelevant for tax purposes. The exemption is subjective in nature and includes all winnings from lotteries, betting and draws organised by the exempted entities, making no distinction on the basis of whether or not winnings are obtained instantly or deferred. Indeed, instant lotteries are also a type of games of chance organised by the entities distributing winnings benefitting from the tax exemption, which shows the inconsistency in the Commission s line of argument in that respect. 33. In the alternative, the Spanish Government argues that, even if the exemption at issue in this case is a discriminatory restriction on freedom to provide services, that restriction may, in the light of the specific nature of the activities in question, be justified for reasons of social policy, on the grounds of preventing money laundering and combating tax evasion and by objectives of consumer protection. 34. With regard, first, to social policy, the Spanish Government takes the view that, in so far as the legislation at issue in this case is comparable to that which the Court had to consider in Schindler and Läärä, 9 and in Zenatti, cited above, the reasoning adopted by the Court in those judgments is applicable in the present case. The only difference between the legislation at issue in Schindler, cited above, and the Spanish legislation, which supports the approach of the Kingdom of Spain, is that, whereas the United Kingdom legislation prohibited the organisation of lotteries subject to a number of exceptions, the Spanish provision makes the winnings from lotteries and games of chance subject to personal income tax. It is not reasonable to argue that, although Community law makes it possible to prohibit, subject to certain exceptions, the pursuit of an activity of that nature, which constitutes a significant restriction on freedom to provide services, a Member State cannot tax the product of that same activity, while providing for exceptions such as those laid down by the Spanish legislation, since the tax is merely an incidental factor in relation to the pursuit of that activity, all the more so since the Spanish provision at issue in this case does not discriminate on grounds of nationality, residence or place of establishment. 35. It is precisely with a view to protecting the social order that the contested exemption was adopted, that is, first, to discourage gambling in general by establishing the principle of taxing that type of income and, secondly, to accord preferential treatment to winnings from lotteries and games of chance organised by public bodies on the basis that benefitting them is in the public interest. Thus, the income obtained by the entities whose games benefit from that exemption helps to finance socially useful infrastructure and projects. 36. The Spanish Government points out that making winnings from games of chance subject to taxation is intended to discourage gambling in general, whereas the exemption provided for in Article 7(ñ) of the law on income tax seeks to channel existing demand for gambling towards forms of gambling which are characterised by the requirement to pay out small sums unlikely to lead to addiction or compulsive gambling and are subject to numerous controls. 37. With regard, secondly, to preventing money laundering and combating tax evasion, the Spanish Government contends that the attainment of those objectives would be seriously compromised if the contested legislation had to apply to winnings from games of chance organised by certain public or charitable bodies not subject to Spanish legislation, since the tax authorities would be unable to monitor such income in the same way as they do now. The system established in Spain makes lists of winners available to the competent authorities, allowing them to cross-check data in order to detect suspicious transactions. In return for the exemption on the winnings which they distribute, AG 9. See Case C-275/92 Schindler [1994] ECR I-1039, and Case C-124/97 Läärä and Others [1999] ECR I-6067.

5 the entities in question must comply with a series of specific cooperation obligations relating to the monitoring of such criminal and fraudulent practices. 38. Thus, according to Article 69(4) of the Spanish regulation on personal income tax, approved by Royal Decree No 439/2007 of 30 March 2007, 10 those entities are to submit, within the first thirty calendar days of the January of the immediately following year, a declaration which sets out the prizes exempted from personal income tax and which, in addition to identifying information, may include the identification, with first names, surnames and tax identification number, of the recipients as well as the amount or value of the prizes received by them exceeding the threshold [EUR 3 000] determined for that purpose by the Ministry of the Economy and Finance. 39. The effectiveness of that control system is due to the very high degree of cooperation and involvement of the entities concerned, to their limited number and to their compliance with the Spanish legislation and administration. However, those conditions could not be satisfied if the exemptions in question were extended, as the Commission wishes, to a large number of entities not subject to the Spanish legislation or the direct control of the Spanish authorities. Indeed, the extension of that control system to non-resident entities would be a case of extraterritorial application of national law, since the transmission of information under those conditions is not provided for by Council Directive 77/799/EEC of 19 December 1977 concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation 11. Accordingly, it would be difficult to require entities located in another Member State to communicate the information and comply with the conditions laid down by that system on the hypothetical ground that some winners in the games of chance and lotteries of that other Member State could be Spanish residents. Therefore, the Commission s proposal that the Spanish authorities could require foreign beneficiary entities to comply with the control system in question is totally disproportionate. 40. With regard, thirdly, to consumer protection, the Spanish Government recalls that, in Spain, the organisation of lotteries and games of chance is an activity subject to legislation which aims to protect the participants rights and interests by ensuring full application of the legislation in force. Prevention is closely linked to the activity of monitoring compliance with the applicable legislation and is intended to avoid the possibility of fraudulently changing or manipulating the conditions under which the operation of the various forms of games of chance run by private entities is authorised. To that end, a number of rules have been introduced, such as the need for administrative approval to pursue the activity, the setting of a minimum percentage for the amounts staked and distributed as prizes, controlled advertising and administrative monitoring of the activity carried out. 41. Extending the exemption at issue to entities not subject to the legislation governing the organisation of those forms of games of chance would have the effect of reducing the level of consumer protection. That exemption is therefore justified by the need to ensure that consumers are afforded the protection deemed to be appropriate by the Spanish authorities, a ground which has been fully recognised by the Court in its case-law. B Assessment 1. The case-law on games of chance and the relationship of the present case with Lindman 42. First of all, before I commence the assessment of the alleged infringement of Article 49 EC and Article 36 of the EEA Agreement, it would, in my view, be helpful to recall the case-law on games of chance and that concerning direct taxation. 43. With regard to the latter, it must be borne in mind that, according to the Court, 12 although direct taxation falls within their competence, Member States must nonetheless exercise that competence consistently with Community law and avoid any discrimination on grounds of nationality. 44. On the other hand, the provisions of the Treaty relating to freedom to provide services apply, as the Court has already specifically established as regards the organisation of lotteries, to an activity which consists in the participation, for a payment, in gambling, provided that at least one of the providers is established in a Member State other than that in which the service is offered Consequently, there can be no doubt that the offer to Spanish residents of lottery and gambling services organised in another Member State falls within the scope of Article 49 EC, provided that at least one of the providers is established in a Member State other than the Kingdom of Spain. It is therefore necessary to examine the Spanish legislation at issue in this case from the point of view of freedom to provide services. 46. The Court has already, in Lindman, ruled on the compatibility of fiscal legislation relating to games of chance with the fundamental freedoms and, in particular, with freedom to provide services. It is therefore helpful, in my view, to note the similarities and differences between the context of this case and that of Lindman, in order to identify the novelty of the issues raised in the present action. 47. Lindman concerned Finnish legislation pursuant to which winnings from games of chance not licensed in Finland were regarded as taxable income, whereas winnings from games of chance organised in that Member State were not taxable income. Because, according to the legislation at issue, only games of chance organised in Finland were not taxed, the Court found that foreign lotteries were treated differently for tax purposes from, and were in a disadvantageous position compared to, Finnish lotteries, which is contrary to Article 49 EC Published in the Boletín Oficial del Estado of 31 March OJ 1977 L 336, p See, in particular, Case C-80/94 Wielockx [1995] ECR I-2493, paragraph 16, and Case C-360/06 Heinrich Bauer Verlag [2008] ECR I-0000, paragraph See Schindler, cited above, paragraph 19.

6 48. In the present case, the difference in treatment of foreign organisers is not as evident and manifest as in Lindman, since the exemption at issue is limited solely to winnings from lotteries, games of chance and betting organised by certain Spanish public entities and by certain non-profit-making Spanish bodies and does not cover all prizes, lotteries and games of chance organised in Spain or by entities established in Spain. 49. In addition, the scope of that exemption is not directly determined on the basis of objective criteria, unlike in Lindman in which, because all foreign lotteries were treated differently for tax purposes from games of chance organised in Finland, application of the discriminatory legislation was based on a single and objective criterion: the origin of the service. 50. Those are the two differences which characterise this case and distinguish it from Lindman, namely an exemption the scope of which does not cover all Spanish organisers of games of chance and the prima facie absence of an objective criterion underpinning the discrimination alleged by the Commission to result from the Spanish legislation. 51. In its application, the Commission maintains that the discrimination against foreign organisers of games of chance which it claims results from the Spanish legislation is contrary to the freedom to provide services ensured by Article 49 EC and Article 36 of the EEA Agreement. 52. Consequently, it is necessary to assess whether the national legislation is discriminatory in nature or in effect. AG 2. The existence of discrimination 53. First of all, it should be recalled that, according to the first paragraph of Article 49 EC, restrictions on freedom to provide services within the Community are to be prohibited in respect of nationals of Member States who are established in a State of the Community other than that of the person for whom the services are intended. 54. The Court has consistently held that the freedom to provide services entails, inter alia, the abolition of any discrimination against a person providing services on account of his nationality or the fact that he is established in a Member State other than the one in which the service is provided In general, it must be acknowledged that any tax exemption results in those who do not benefit from it being treated differently. Moreover, in this case it is common ground that the Spanish legislation at issue treats winnings from betting organised by the entities listed in Article 7(ñ) of the law on income tax more favourably for tax purposes than winnings from betting organised by other national entities and by all foreign entities, whatever their characteristics. 56. It is now necessary to examine whether that undeniable difference in treatment under the Spanish legislation at issue constitutes discrimination against organisers of games of chance established abroad. 57. According to the settled case-law of the Court, the general principle of equality, of which the prohibition of discrimination on grounds of nationality is merely a specific expression, is one of the fundamental principles of Community law. That principle requires that comparable situations should not be treated differently unless differentiation is objectively justified Hence, in order to assess whether the Spanish legislation may be considered discriminatory, it is necessary to determine which Spanish and foreign entities are in a comparable situation in the present case. 59. I would point out that all the organisers of games of chance covered by the exemption provided for by the legislation at issue in the present case are not only established in Spain but are also public entities or non-profit-making bodies pursuing activities of a social character. 60. With regard, in that context, to the Spanish Government s argument that the Spanish legislation at issue does not define the scope of the exemption by reference to certain specific characteristics and that there is consequently no discrimination against non-resident entities with characteristics similar to those listed in the provision at issue, it is important to note that, in its defence, the Spanish Government contradicted that argument on several occasions. It stated that they are exemptions laid down on the basis of the identity of the organisers which all pursue social or charitable non-profit-making activities. It even states that the differences in treatment in relation to other lottery organisers offering equivalent products arise solely because the latter (whether they are Spanish or foreign) do not possess those particular qualities. Finally, the Spanish Government points out that the reasons which led the Spanish legislature to grant that exemption are of a social nature and the entities concerned are non-profit making. 61. Therefore, although the Spanish legislation at issue does not expressly lay down any objective criteria for determining the entities distributing winnings which are to benefit from the tax exemption, the fact remains that those bodies could have been defined using criteria such as their status as public entities and non-profit-making bodies pursuing social activities. 14. See Lindman, cited above, paragraph See Case C-288/89 Collectieve Antennevoorziening Gouda [1991] ECR I-4007, paragraph 10; Case C-17/92 Distribuidores Cinematográficos [1993] ECR I-2239, paragraph 13, and Case C-490/04 Commission v Germany [2007] ECR I-6095, paragraph See, in particular, Case 810/79 Überschär [1980] ECR 2747, paragraph 16; Case C-174/89 Hoche [1990] ECR I-2681, paragraph 25, and Case C-418/06 P Belgium v Commission [2008] ECR I-3047, paragraph 93.

7 62. In that context, it should be recalled that the Court held in Persche that, whilst it is lawful for a Member State to restrict the grant of tax advantages to bodies pursuing certain charitable purposes, a Member State cannot however restrict the benefit of such advantages only to bodies established in that State whose activities are thus capable of absolving it of some of its responsibilities The Court pointed out that a body established in one Member State which pursues the same charitable purposes and which is recognised as pursuing those purposes by another Member State, if it satisfies the requirements imposed by that other Member State for the grant of tax advantages, is, in respect of the grant by the latter Member State of those advantages, in a situation comparable to that of bodies recognised as having charitable purposes which are established in the latter State Although Persche concerned the deductibility for tax purposes of the value of gifts made by a resident of a Member State to a body recognised as charitable in another Member State and not with the exemption from taxation of winnings from games of chance, the fact remains that the principle set out in Persche may be applicable by analogy in the present case. 65. The public bodies and entities pursuing social or charitable non-profit-making activities in relation to which the Commission has brought this action have, like the body recognised as charitable in Persche, charitable purposes and their activities are, likewise, capable of absolving the Member State of some of its responsibilities. Both the deductibility of the value of gifts, at issue in Persche, and the exemption of winnings, the subject-matter of the present case, constitute measures which are applicable in income-tax matters and give rise to a tax advantage for their beneficiaries. 66. Therefore, LAE, the bodies or entities of the Autonomous Communities, the Spanish Red Cross and ONCE are in a situation comparable to that of public bodies and the entities pursuing social or charitable non-profit-making activities established in another Member State and having the same objectives. 67. As I have already stated in point 55 of this Opinion, the Spanish legislation at issue treats winnings from betting organised by the entities listed in Article 7(ñ) of the law on income tax more favourably than winnings from betting organised by other national entities and by all foreign entities. Consequently, public bodies and entities pursuing non-profit-making activities established in another Member State and having the same objectives as the Spanish entities covered by that exemption are in a less favourable position than the latter. 68. Taking into account the fact, also undisputed, that all the bodies covered by the tax exemption in question are established in Spain, I take the view that the tax provisions at issue in this case constitute discrimination on grounds of nationality against public bodies and entities pursuing social or charitable non-profit-making activities established in another Member State and having the same objectives as the Spanish entities benefitting from that measure. 69. However, it should be pointed out that that discrimination does not affect all organisers of games of chance established in another Member State. Hence, as the Spanish Government emphasises, subject to Article 7(ñ) of the law on income tax, the winnings from all forms of games of chance organised by resident entities are subject to the same taxation as winnings from such games organised by non-residents. Consequently, profit-making private foreign entities or foreign entities which pursue social activities, but have objectives other than those of the Spanish entities covered by the exemption, are subject to the same tax treatment as all the Spanish bodies not referred to by that provision Nevertheless, it must not be overlooked that the application claims that the Kingdom of Spain, in its legislation, establishes a difference in treatment between winnings from lotteries, games of chance and betting organised in Spain that are exempted from income tax and winnings from lotteries, games of chance and betting organised outside Spain. 19 The Commission claims that the Spanish Government s legislation thereby establishes more extensive discrimination against all organisers of games of chance established outside Spain. I therefore propose that the Court should recognise the existence of discrimination only in part, in so far as it operates between, on the one hand, the entities listed in Article 7(ñ) of the law on income tax and, on the other hand, the public bodies and entities pursuing social or charitable non-profit-making activities established in another Member State and having the same objectives as the Spanish entities concerned, and should dismiss the remainder of the application as unfounded. 71. Although the discriminatory exemption applies only to a small number of Spanish entities, its economic effects are considerable. As the Commission points out, it follows from the Annual Report on Gambling in Spain of 2006, published by the Spanish Interior Ministry, that, according to the percentage share by management type, 40.8% of games of chance (in terms of sums wagered) were organised by LAE and ONCE (33.4% and 7.4% respectively), with the consequence that that exemption covers more than 40% of the Spanish market for games of chance. 72. That consequence is all the more significant since the Spanish Government has not refuted the Commission s argument also borne out by the Annual Report on Gambling in Spain of 2006 that the Spanish legislation exempts from income tax almost all the winnings from a particular sector of services provided by betting organisers established in Spain, namely the organisation of games of chance in which winnings are deferred in time and participants simply purchase a betting form or slip. The Spanish Government merely claims that certain instant games are also organised by the entities distributing winnings which benefit from the tax exemption, an assertion which does not exclude the possibility that most games of chance in which winnings are deferred in time are organised by the entities covered by the exemption. Moreover, it is important to note that that type of game is more likely to be provided on a cross-border basis, because it requires no infrastructure in other countries since such services may be provided from any other Member State. 17. Case C-318/07 Persche [2009] ECR I-0000, paragraph Ibid, paragraph My emphasis.

8 73. Taking into account that economic consequence of the discriminatory exemption, I would reject the Spanish Government s argument that the Spanish Red Cross and the French Red Cross are not in a comparable situation because the latter (a) does not have, in Spain, a similar network of sales outlets and (b) has never applied for approval to organise games of chance. With regard to the first argument, quite apart from the fact that the two organisations unquestionably pursue the same objectives and have the same characteristics which makes their situation not only comparable but also similar, it must be borne in mind, as emphasised in the preceding point, that most games of chance covered by the exemption at issue are games that do not require any distribution system. 74. As for the other argument, I consider that it is not necessary for a non-resident entity to apply for authorisation before the discrimination at issue can be found to exist. Therefore, I take the view that that argument of the Spanish Government is irrelevant. 75. Finally, as regards the Spanish Government s argument concerning the non-comparability of the situation of a Spanish taxpayer who benefits from the tax exemption on winnings from games of chance organised by the entities referred to and that of a taxpayer of another Member State in which those winnings are subject to taxation, it should be pointed out that the law on income tax concerns only Spanish taxpayers and that the discrimination does not affect the taxpayers of other Member States, but operates to the detriment of organisers of games of chance established in other Member States wishing to extend their activities to the territory of Spain. Consequently, in my view that argument of the Spanish Government is also irrelevant. 76. To the extent that the Spanish legislation at issue is regarded as discriminatory within the meaning of the first paragraph of Article 49 EC and Article 36 of the EEA Agreement, it constitutes in itself a restriction on freedom to provide services for the purposes of the Treaty and is therefore, in principle, contrary to Community law. AG 3. Justifications 77. Restrictions on the freedom to provide services can nevertheless be permitted pursuant to the derogations expressly provided for by Articles 45 EC and 46 EC or justified, in accordance with the Court s case-law, by overriding reasons relating to the public interest With regard, first, to discriminatory restrictions on the freedom to provide services, the Court has repeatedly held that such measures may be justified only on the grounds expressly provided for in Articles 45 EC and 46 EC, that is to say a connection, even on an occasional basis, with the exercise of official authority, or grounds of public policy, public security or public health With regard, on the other hand, to restrictions resulting from measures which apply without distinction, the Court has accepted that, in so far as they apply without distinction to organisers established on the territory and to those established in another Member State, they may be justified by overriding reasons relating to the public interest, such as the protection of consumers and of the social order, provided that they are suitable for securing the attainment of the objective which they pursue and do not go beyond what is necessary in order to attain it As regards games of chance, the Court has not yet adopted in a rigid way the distinction described in the two preceding paragraphs. 23 In Läärä and Others and Zenatti, even though those cases concerned legislation applicable without distinction, which could be justified by overriding reasons relating to the public interest, the Court also referred to the grounds of justification under Article 46 EC without having carried out a separate assessment on the basis of that provision. 24 In Gambelli and Others, the Court found that the measures at issue constituted a restriction on the freedom to provide services, but left to the national court the task of determining whether the legislation in question was discriminatory. 25 In Lindman, which concerned discriminatory legislation, the Court did not examine the grounds of justification cited; it reached a decision solely by reference to the Member State s failure to submit an analysis of the appropriateness and proportionality of the restrictive measure It is difficult to establish clear criteria for distinguishing between reasons capable of justifying discriminatory measures and those capable of justifying measures applicable without distinction in this area, where particular moral, religious and cultural features, and the morally and financially harmful consequences for the individual and society associated with gaming and betting, serve to justify the fact that national authorities have a margin of discretion sufficient to enable them to determine the requirements capable of triggering the application of different grounds of justification In this case, it must be noted that the line of argument put forward by the Spanish Government and by the Commission reflects the situation described in the preceding point. In order to address the Commission s assertion relating to the existence of discrimination on grounds 20. Läärä and Others, cited above, paragraph 30; Zenatti, cited above, paragraph 28, and Case C-243/01 Gambelli and Others [2003] ECR I-13031, paragraph See Case 352/85 Bond van Adverteerders and Others [1988] ECR 2085, paragraphs 32 and 33; Case C-353/89 Commission v Netherlands ECR I-4069, paragraph 15; and Case C-388/01 Commission v Italy [2003] ECR I-721, paragraph See Schindler, cited above, paragraph 54; Läärä and Others, cited above, paragraph 31, and Zenatti, cited above, paragraph In that regard, it must be recalled that in his Opinion in Danner, which concerned freedom to provide services, Advocate General Jacobs favoured the abandonment of the distinction between the grounds of justification for discriminatory measures and for measures which apply without distinction, but the Court did not adopt that proposal. See point 40 of the Opinion of Advocate General Jacobs in Case C-136/00 Danner [2002] ECR I See Läärä and Others, paragraph 31, and Zenatti, paragraph Paragraphs 70 and Paragraph See Schindler, paragraphs 60 and 61; Zenatti, paragraph 15, and Gambelli, paragraph 63.

9 of nationality, the Spanish Government cites grounds which may, in principle, justify measures which apply without distinction but not discriminatory measures. It puts forward grounds of social policy, reasons relating to the prevention of money laundering and to combating tax evasion, and objectives relating to consumer protection. 83. Consequently, in order to be able to assess those arguments in depth, while maintaining the distinction which, as stated in points 78 and 79 above, the Court has generally drawn between justifications for discriminatory measures and justifications for measures which are applicable without distinction, I will examine those three sets of justifications which the Kingdom of Spain has founded on overriding reasons relating to the public interest by ascertaining whether it is appropriate to take into consideration the elements on which they are based for the purpose of the exemptions provided for in Article 46 EC. If I consider that they constitute discrimination on grounds of nationality, I must take into consideration the justifications relied on by the Spanish Government only to the extent that they could, in terms of their specific content, be understood as being in the nature of grounds of justification capable of being relied on if there were discrimination. a. The arguments capable of being interpreted as relating to the protection of public health 84. First of all, it must be noted that some of the arguments submitted by the Spanish Government in the context of reasons connected with protecting the social order may be reduced to the ground of protecting public health, provided for in Article 46 EC. According to the Spanish Government, the legislation in question should discourage gambling in general by establishing the principle that such income is taxed and the exemption in question seeks to channel existing demand for gambling towards forms of gambling which are characterised by the requirement to wager small sums unlikely to lead to addiction or compulsive gambling. 85. With regard to the argument concerning the objective of discouraging involvement in games of chance, there is little doubt that the main attraction of a game of chance is linked to the amount of potential winnings. By reducing the net winnings, the taxation of winnings from games of chance is likely to make participation in that type of gambling less attractive. However, the Commission s application does not refer to the taxation of winnings from games of chance per se, but to the allegedly discriminatory nature of the exemption of winnings from games of chance organised by the Spanish entities listed in Article 7(ñ) of the law on income tax. That exemption of winnings is likely instead to encourage consumers to participate in such lotteries, games of chance and betting by making them more attractive than the games of chance organised by entities in which winnings are subject to tax. Consequently, the exemption at issue is not suitable for ensuring the attainment of the objective of discouraging participation in games of chance. 86. As regards the argument concerning the objective of channelling the desire to gamble towards certain forms of gambling in order to prevent compulsive gambling, it must be noted that the Spanish Government, despite the settled case-law which requires the submission of analyses capable of establishing the appropriateness and proportionality of the restrictive measure, 28 adduced no evidence of a statistical or other nature to suggest that only the entities benefitting from the exemption organise games of chance characterised by the requirement to wager small sums or, on the other hand, that they organise only such types of games of chance. Moreover, it is common ground that the legislation in question does not take into account the various types of games of chance for the purpose of granting the exemption, but is based on the characteristics of and objectives pursued by the organisers of the games of chance; hence, it is difficult to understand how that rule is appropriate for the purpose of channelling the desire to gamble towards games which require small sums to be wagered. I therefore take the view that the exemption in question is not suitable for ensuring the attainment of such an objective. 87. With regard to the Spanish Government s argument that the income received by the entities whose games qualify for the exemption in question contributes to the financing of infrastructure and objectives that are socially useful, it must be pointed out that economic grounds are not among the grounds included in Article 46 EC nor can they constitute overriding reasons in the public interest justifying a restriction of the freedom to provide services guaranteed by the Treaty As the Court has already held in Zenatti and Gambelli and Others, although it is not irrelevant that lotteries and other types of gambling may contribute significantly to the financing of non-profit-making or public-interest activities, that motive cannot in itself be regarded as an objective justification for restrictions on the freedom to provide services. 30 Consequently, the Spanish legislation in question cannot be justified on the basis of ensuring the financing of certain socially useful objectives. 89. Finally, it is necessary to consider the two comments made by the Spanish Government in the context of its plea claiming a social policy justification. On the one hand, the Spanish Government raises the possibility of applying, in the assessment of the restrictions in the present case, the reasoning adopted by the Court in connection with the application of that justification in Schindler, Läärä and Others and Zenatti, on account of the similarity of the legislation at issue with the legislation examined by the Court in those cases. On the other hand, the Spanish Government submits that the taxation in question is indirect and less restrictive in nature as compared with the limitation on gaming activities which was the subject-matter of the three cases referred to above. 90. In that regard, it is important to bear in mind that, in Schindler and Zenatti, cited above, the Court pointed out that the national authorities have a discretion sufficient to allow them to determine what is required for the purpose of protecting consumers and the social order; according to those judgments it is for the national authorities to assess not only whether it is necessary to restrict gaming activities but also whether they should be prohibited, provided that those restrictions are not discriminatory Lindman, cited above, paragraph See, in particular, Case C-484/93 Svensson and Gustavsson [1995] ECR I-3955, paragraph 15, and Commission v Italy, cited above, paragraph 19 and Zenatti, cited above, paragraph 36, and Gambelli and Others, cited above, paragraph Schindler, cited above, paragraph 61, and Zenatti, cited above, paragraph 15.