Over the last few years, various tax obligations have been imposed on foreign online sports betting and casino games providers which offer their services to German consumers. Before mid-2012, they had not generally 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 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 subject to general VAT. Until the 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 liability at all in Germany.
From 1 January 2015, however, the VAT treatment of electronically supplied services within the European Union changed to the place where the consumer of the respective services resides (“destination principle”). This means that 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 these taxation rules have been in place for quite a while now, a number of e-gaming providers have not yet updated their tax reporting procedures to take the changes into account. As a consequence, the Financial Authority of Berlin Neukölln (“Finanzamt Neukölln”), which is responsible for the taxation of online casino games provided by European e-gaming providers offering their services to German consumers, contacted a significant number of e-gaming providers at the end of May 2016, requesting information on their 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 offence in Germany and cross-border enforcement of 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.
Importantly, it is possible to rectify historical non-compliance with German tax law through a voluntary disclosure of tax liabilities to the financial authorities. A subsequent tax declaration and payment of taxes for past liability (plus interests and potential fines) may lead to a full exemption from criminal sanctions in Germany, which may be a sensible way for many operators to legalise their German activities from a tax perspective.
Making a historical tax declaration can be a bureaucratic and potentially onerous process:
- It must be provided for the time frame during which the non-payment of taxes may be prosecuted (i.e. 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.