HM Revenue & Customs (HMRC) has suffered a serious set back in its attempt to reclaim VAT rebates on amusement with prizes (AWP) machines that have been issued to pub operators and licensees. HMRC appealed at the European Court of Justice (ECJ) against a High Court ruling concerning Rank, dating back to 2009, that said the casino operator should receive £26m it had overpaid in VAT on gaming machines between 2002 and 2005. The 2009 ruling led to hundreds of pub operators and licensees receiving tax rebates on overpaid VAT from the taxman - Whitbread claimed back £5m for its pub restaurants in 2010. However, operators faced the prospect of having to pay back their reclaimed VAT payments if the ECJ ruled in favour of HMRC. The High Court said the fact that VAT had been charged on some machines — including category C AWP machines used in pubs — and not others had broken EU competition law. The ECJ broadly agreed, said that having different VAT charges on different types of machines that offer identical or similar services for customers represents an “infringement” of the principle of fiscal neutrality. The case will now return to the domestic courts to consider its position in light of the ECJ judgement. In the meantime, HMRC must now decide what action it takes. “HMRC is studying the judgment and will issue further advice once the potential implications have been identified,” it said in a statement. Experts say HMRC will have little room for manoeuvre after the ECJ ruling. Peter Coulson, legal editor of M&C Report’s sister title The Publican’s Morning Advertiser, said pub operators can now “rest easy”. “HMRC just have to roll over on this one.” A spokesman for the British Beer & Pub Association agreed: “It’s looking good for the pubs that have put a claim in. [HMRC] hasn’t got a great footing to stand on in this.” However, Anbreen Khan, VAT partner at Deloitte, who advised Rank, told M&C Report that there were two options available for HMRC despite the ECJ’s ruling. The ECJ said HMRC had the right to dispute the claim that there was sufficient difference between different types of gaming machines. It could also argue on a technical point about the difference between its practice and its policy around taxing machines. “I can’t eliminate the possibility that HMRC may be successful on appeal but to overrule [the ECJ] would be a tough move,” she said, adding that there’s a “high likelihood” the rebates received by pub operators would be secure. There had been concerns that if the ruling had gone in favour of HMRC, tenants and lessees of major pubcos could have been forced to pay back money they hadn’t received. A number of pubco agreements split the income of AWP machines 50:50 between the pubco and tenant — meaning any VAT refunds would be split down the middle. In cases where the full refund has been sent to the licensee, HMRC had confirmed it will pursue the individual licensee for the full amount and not the pubco for their 50%.