Sales, Use and International Tax Activity Update - March 2010

Jeepers Creepers — How to Tax Those “Peepers”?

Do peep shows qualify as cinema and, as such, for a reduced VAT rate in Belgium? That was the question at the heart of the court case brought before the European Court of Justice in the case of Erotic Center BVBA v Belgian State (C-3/09).

The Belgium Government and the European Commission argued that peep show cubicles were more like coin operated entertainment machines than cinema since the customer personally starts the film by inserting a coin. Such machines are subject to the standard rate in Belgium. The customer also has the option of switching from one film to another during the session.

The Belgium Government further argues that peep show booths could not be regarded as cinema because it is not a room where a group of people can view a film at the same time.

To make sure that all bases are covered the Belgium Government and the Commission argued that even if the cubicles were considered to be services eligible for the reduced rate they could still be standard rated. Member States are entitled to apply the reduced rate to a limited range of such services provided they do not violate the principle of fiscal neutrality. The exclusion of the cubicles from the services subject to the reduced VAT rate would not violate the principle of fiscal neutrality since the projection of films in a cinema and the services offered in a peep show cubicle constitute non-competing services.

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