Over the last few years, various tax obligations have been implemented for foreign online sports betting and casino games providers which offer their services to German consumers. Until Mid-2012, respective providers have generally not been subject to German taxation.
Taxation of online sports betting
Since July 2012, however, the provision of sports betting services has become subject to the so-called “Race betting and Lottery Tax” if the player is of German residence at the time of entering into the betting contract, even if the sports betting company is not located in Germany. The foreign sports betting operator is obliged to register at the Financial Authority of Frankfurt/Main and to pay a tax rate of 5% of the nominal value of the players’ stakes.
Taxation of online casino games
Casino games are not subject to a special casino games tax but are levied with the general VAT. Until end of 2014, the VAT treatment of electronically supplied services within the European Union, such as the provision of online casino games, depended on the place of business from which the service provider operated (“country of origin principle”), often leading to a minimal or even no VAT obligation at all, depending on the respective company’s origin.
Since 1st of January 2015, the VAT treatment of electronically supplied services within the European Union has changed to the place where the consumer of the respective services resides (“destination principle”). Thus, all online casino games provided to German residents are now subject to the German VAT rate of 19%. Even though this taxation rate seems much higher than the taxation of sports betting services, taxation in practice is much lower: The taxation of sports bets is linked to the players’ stakes, while the taxation of casino games is generally linked to the (much lower) gross gaming revenue of the e-gaming providers.
Enforcement activities by the Financial Authority of Berlin Neukölln
Even though respective taxation rules have been in place for quite a while now, a relevant number of e-gaming providers still has not updated internal structures in order to comply with the new tax requirements. As a consequence, the Financial Authority of Berlin Neukölln (“Finanzamt Neukölln”), which is competent for the taxation of online casino games provided by European e-gaming providers offering their services to German consumers, has contacted a high number of respective e-gaming providers end of May 2016, requesting information on the respective providers’ business operations in Germany to verify their tax compliance.
Consequences of non-compliance / voluntary disclosure
As the non-payment of taxes is considered a criminal offense in Germany and cross-border enforcement of respective tax law obligations is possible, e-gaming companies offering their services to German consumers should assess very carefully whether they are obliged to pay taxes in Germany and what steps they should take in order to achieve tax compliance.
However there is the possibility to rectify former non-compliance with German tax law by a voluntary disclosure of tax liabilities towards the financial authorities. A subsequent tax declaration and payment of taxes for the past (plus interests and potential fines) may lead to a full exemption of criminal punishment in Germany, which may be a sensible way for many operators to legalize their German activities from a tax perspective.
Still, such subsequent tax declaration is a formalistic and burdensome process:
- It must be provided for the time frame for which the non-payment of taxes may still be prosecuted (i.e. covering timeframes from 1 January 2015 for VAT payments and from 1 July 2012 for sports betting tax payments).
- The due taxes (plus interest and fines) must be paid within the period set by the competent tax authority.
- The tax evasion must not yet have been discovered by the authorities. If the discovery is imminent, the discharging effect will only take place if the e-gaming provider does not know and could not have known that the tax crime is about to be discovered.
Furthermore, the subsequent tax declaration has to be complete and cover all taxes to be paid during the taxable period. Otherwise, the voluntary disclosure and subsequent tax declaration will not have discharging effect.