German state treaty to take effect from 1 July
German Bundestag passes Federal Horse Racing Act in turn introducing a 5% turnover tax on private sports betting operators that will take effect on 1 July.
The German Bundestag has amended and passed the country’s Federal Horse Racing and Lottery Act, in turn introducing a 5% turnover tax on private online sports betting operators that will take effect on 1 July.
The news follows the ratification of Germany’s controversial Interstate Gambling Treaty eight days ago – allowing only 20 sports betting licences and imposing a restrictive turnover tax of 5% for private operators – signed by 14 of the country’s 15 signatory states. This will also come into effect in two days time. North Rhine-Westphalia is the only state aside from Schleswig-Holstein not to agree on the amendment, however according to sources this is due to the western state operating on a different timetable to other regions.
A local legal source told eGaming Review that once operators successfully apply for and operate using a federal sports betting licence they will no longer be obliged to pay the 20% levy on gross profits imposed by Schelswig-Holstein, the only state to have broken away from the state treaty. “If you pay a federal 5% turnover tax then the Federal Act overules the levy in Schleswig-Holstein and you don’t have to pay it,” the source said.
The government has said it hopes to raise between 40 to 60m from the exercise as and when the licensing process begins via the far western German region of Hesse that has been tasked with the function.
As a result tote and retail betting businesses have seen their tax rates reduced from 16.67% to 5%, while lottery organisations will continue to pay a 16.67% turnover levy.
On 15 December last year Germany’s 15 Länder, with the exception of breakaway state Schleswig-Holstein that has awarded its own licences, signed a second draft treaty with the provision that they would only implement it if the European Commission gave them the ‘green light’ to do so. However, in March the EC issued a detailed response rejecting Germany’s revised proposals with several sources, including the Minister of Economy, claiming this could spell the “end of the road” for the bill in its present form.
The treaty proposes the issue of up to 20 licences for online sports betting to be issued to private operators, based on a 5% turnover tax, a 1,000 cap on player bets, and restrictions on in-play, while online casino and poker are banned. This is an improvement, however on the original proposal of seven licences and a 16.6% turnover tax, but is still considered unworkable by the majority of operators with interests in a market valued at 1bn.
Schleswig Holstein, that saw its own draft gambling law approved by the European Commission in May, did not sign the treaty at the time, however the state’s new coalition government that was formed earlier this month has publically stated it could seek a return to the controversial bill. Howvever, Andreas Breitner, Schleswig-Holstein’s new interior minister, insisted last week that the state’s seven dot.de online gaming operators’ licences were safe for their six-year period and that he will look to sanction a further four to six new sports betting licensees from a backlog of more than 40 applicants.
The source eGR spoke to however, said it was unlikely that Schleswig-Holstein would issue casino or poker licences now the federal structure was in place due to the risk of legal action. The main issue on the federal side, however would be the restriction on the number of licences offered. “It will be very interesting to see if there will be more than 20 applicants who apply and how the government reacts,” the source said. “If the 21st applicant decides the process is unjust this could lead to a court challenge based on the limitaiton of licences,” the source added.
At the end of March this year the European Commission criticised the 15 states’ proposals for failing to address its main concerns over its compatibility with European law with Jörg Bode, Minister of Economy and deputy Prime Minister for the state of Lower Saxony saying the treaty had “failed in its present form”.
The EC gave the various state governments two years to prove the viability of a 5% turnover tax on sports betting while at the same time excluding all other products; the Treaty’s restrictions on freedom to provide gambling services; and the lack of information on the reasons as to why states have chosen to exclude a number of products including poker and casino.