Court Questions Motives for Hungary’s Slot Ban

(CN) - A Hungarian law barring slot machines everywhere but in casinos may be unconstitutional, the European Court of Justice ruled on Thursday.

For years, Hungary allowed slot machines in both casinos and arcades - and levied a $365 tax on each machine.

After raising the per-slot tax to over $1,800 in 2011, the Hungarian government tacked an additional revenue-based tax on arcades' slots but not on casinos' machines.

The following year, Hungary passed a law restricting slot machines to casinos only - a move that led arcade owners to sue. They claimed EU law barred Hungary from drastically increasing their taxes and then restricting their businesses in rapid succession.

In a 13-page opinion issued on Thursday, the EU high court agreed.

The Luxembourg-based court acknowledged that member states have the authority to restrict gambling to pursue a legitimate social aim, even though it means infringing on the constitutionally guaranteed freedom to provide services.

But the high court questioned whether Hungary's motives behind the sharp increase in taxes on arcade slots and then shutting them off entirely - while leaving casino machines in place and their taxes level - involved such lofty social aims as curbing gambling addiction and combating crime.

The national court must decipher the true motives of Hungarian lawmakers, the EU court said.

"National legislation which, without providing for a transitional period, introduces a five-fold increase in the flat-rate tax to be paid on slot machines operated in amusement arcades and in addition introduces a proportional tax on that activity, constitutes a restriction on the freedom to provide services guaranteed by the EU constitution provided that it is liable to prohibit, impede or render less attractive the exercise of the freedom to provide the services of operating slot machines in amusement arcades, this being a matter which it is for the national court to determine," the court wrote.

Similarly, revoking the arcades' licenses to operate slot machines without compensation or a transition period could constitute an unlawful restriction on their freedom to provide services, the court said - adding that the Hungarian government may be liable for damages should the courts there find the law unjustified.

"The EU constitution is intended to confer rights on individuals in such a way that its infringement by a member state, including as a result of its legislative activity, gives rise to a right of individuals to obtain from that member state compensation for the damage suffered as a result of that infringement, provided that that infringement is sufficiently serious and there is a direct causal link between that infringement and the damage sustained, which it is for the national court to determine," the EU court concluded.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit