German Gambling Tax Dispute Unsuccessfully Presented by Maltese Betting Firms to the Federal Constitutional Court
Title: Foreign Gambling Companies in Germany: A Hefty Tax Bill, Now and Future Implications
By Timm Schaffner, Edited by Angela Burke
German Federal Constitutional Court Stands Firm: Taxes Away, EU Law Be Damned?
The German Federal Constitutional Court has dealt a heavy blow to online sports betting companies based in EU nations, ruling that they must pay gambling tax in Germany (1 BvR 2253/23 and 1 BvR 115/24). The court's decision, announced earlier this month, has sent shockwaves through the gambling industry, sparking criticism and legal battles that could reshape the gambling landscape in Germany and beyond.
Foreign Providers Cry Foul:
The Court's decision comes in response to complaints from online sports betting providers based in Malta. The providers, disgruntled with the taxation of customer bets under § 17(2) of the Racing and Lottery Act, had argued that they already paid gambling taxes in Malta, claiming an alleged double taxation and a violation of the European freedom to provide services within the EU.
The first company contested its previous online sports betting activities, while the second, a betting exchange, felt particularly disadvantaged by the tax levied on the entire bet amount.
Criticism Unfounded, Court Rules:
Despite the providers' assertions, the Federal Constitutional Court has dismissed their claims as inadmissible, arguing they lacked substantial evidence to support their constitutional concerns. The court's rejection of the complaints hinged on their interpretation of case law from the European Court of Justice (ECJ), which had not criticized a comparable situation of double taxation between Malta and Italy in a 2020 ruling.
The betting exchange model, the court determined, does not constitute a violation of freedom of profession, as the purpose of the turnover-based tax is to control and limit gambling, rather than to promote alternative business models.
The Road Ahead: ECJ's Verdict Awaited:
At present, the ECJ is grappling with a crucial question: whether gambling providers from EU countries were legally active in Germany before 2021. This period saw no nationwide valid licenses issued in Germany, leading numerous courts to deem contracts between gambling companies and players invalid and order refunds of losses.
Yet, the licensed and based-in-EU companies argue that they were legally allowed to offer gambling in Germany due to the freedom to provide services within the EU, despite the lack of a German license application process at the time. The industry eagerly awaits the ECJ's decision, with implications for both the past and future.
The Taxance of Tomorrow:
While the German Constitutional Court's decision primarily addresses the past, its implications are likely to persist in the future. Online sports betting providers with a German license now face a 5.3% tax on customers' stakes, but unlicensed providers remain barred from the German market, pursued by the Joint Gaming Authority of the States (GGL).
However, statistics reveal that a significant portion of online gambling in Germany takes place on the black market. By taxing stakes rather than gross gaming revenue, providers may be forced to reduce payout ratios, making legal offers less appealing and driving players towards the unregulated market.
[Enrichment data]The German Constitutional Court's jurisprudence on taxability of foreign gambling companies could potentially conflict with EU law principles, such as proportionality and non-discrimination. A unilateral tax approach could also result in double taxation without multilateral coordination. Cross-border compliance and harmonization efforts are crucial to resolving such challenges.
- Other gambling providers based in Malta, besides the ones mentioned, have voiced their concerns over the taxation of their online sports-betting activities in Germany.
- The finance provided by these Malta-based providers for their sports-betting business is taxed in Malta, causing them to claim an alleged double taxation and violation of the European freedom to provide services within the EU.
- The sports-betting landscape within Malta could be impacted if other providers in the country decide to challenge the German gambling tax regulations in court, following the footsteps of the initial companies.
- The sports-betting industry, both in and beyond Malta, is closely observing the future implications of this court decision, as it may set a precedent for similar cases across Europe.
- The finance collected from taxes on sports-betting activities could be used to fund social programs addressing issues related to problem gambling, thus benefiting the wider German society.
