German Gambling Tax Dispute Unsuccessfully Pursued by Maltese Sports Betting Firms before the Federal Constitutional Court

Chilling the Roll of International Betting Firms in Germany - A Glimpse into the Future

German Constitutional Court Slaps Down Two Feathers from Maltese Falcons
Taxman's Rapid Fire Aimed at Foreign Gambling Enterprises Operating in Germany
No Harm, No Foul: A Plausible Response to Charges of Crippling Double Taxation and Infringement of Professional Freedom

Gunning down sports betting providers based in EU member states fora tax-evasion-spree in Germany (Symbolic image). © Rainer Lück/Wikipedia

Betting Birds Squawk their Complaints

The German Federal Constitutional Court annihilated two constitutional complaints (1 BvR 2253/23 and 1 BvR 115/24) from online sportsbook providers nesting in Malta as declared in the official communiqué of the court's decision.

The migratory fowls had squawked their disapproval of the taxation of the revenues amassed from customer bets under § 17 (2) of the Racing and Gambling Act, which yolked a 5 percent tax on customer wagers from 2012 to 2021. Among other feathers ruffled, the winged ones had claimed this was a grievous case of double taxation. They pointed out that they already coughed up gambling taxes in Malta and viewed the German impost as a malign violation of the European freedom to provide services.

At the time, one company had been plying its trade as an online sportsbook provider, while the other had run a so-called betting exchange, where feathered clientele pitted their bets against one another. The go-between felt especially beleaguered by the tax tacked onto the entire wager.

The Court Remains Unfazed

The Federal Constitutional Court dismissed both complaints as unfounded. The providers had not convincingly articulated their constitutional concerns, the court argued.

The argument of double taxation was quashed due to the case law of the European Court of Justice (ECJ). In a 2020 verdict, the ECJ did not voice any opposition to a dolorous comparability between Malta and Italy.

The revelation that the business plan of a betting exchange ended up in the nest because of the imposition of a wager-based tax did not constitute an infringement upon the freedom to pursue a profession. The core purpose of the turnover tax is, among other objectives, to rein in gambling and ward off gambling addiction. The legislature's intention is not to foster alternative business strategies by dangling tax incentives.

ECJ's Decision: the Elephant in the Room

In the imminent hours, the ECJ must render its judgment on whether gaming providers from EU member states were permissibly operative in Germany prior to 2021. Owing to the non-availability of nationwide valid licenses in Germany during this period, contracts between gaming enterprises and patrons were annulled by various tribunals, and the companies were ordered to reimburse losses.

Nevertheless, the companies licensed and localized in EU member states allege that they were legally entitled to offer gambling in Germany due to the freedom to provide services in the EU. They argue that the absence of an option to procure a German license at that time did not warrant a breach of the law.

All one can do is speculate on how the ECJ will rule in this matter, and ponder upon its possible repercussions. It could potentially be that the legitimacy of the freedom to provide services prior to 2021 might engender a reevaluation of constitutional complaints.

Tax Pinned Down: A Persistent Presence in the Future

Although the verdict of the Federal Constitutional Court pertains to the past, its ramifications may persevere for the future. Online sportsbook providers now find themselves involuntarily saddled with a tax of 5.3 percent on their customers' wagers. However, this tax-distinction pertains only to licensed providers. Unlicensed providers are banned from exploiting the German market and are pursued by the joint-agency of the German States (GGL) - albeit not always to the extent that the sector and government would covet.

Statistics indicate that a considerable proportion of online gambling in Germany occurs in the shadows. If wagers and not gross gaming revenues are taxed, providers must scale back their payout ratios, potentially compromising the allure of legal offers. Players could then be lured towards the murky confines of the unregulated market.

The dismissal of the constitutional complaints (1 BvR 2253/23 and 1 BvR 115/24) from online sportsbook providers based in Malta by the German Federal Constitutional Court does not constitute a change in the 5.3% tax on customer wagers from 2022 onwards, updated in the Racing and Gambling Act.
The German Constitutional Court's decision leaves the operation of foreign gambling enterprises in Germany unchallenged, despite the claims of infringement of professional freedom and double taxation, especially by the betting exchange providers.
The ECJ's upcoming decision on whether gaming providers from EU member states were legally entitled to offer gambling in Germany prior to 2021 will have a significant impact on the future of online sportsbook providers, as it may influence the evaluation of constitutional complaints and the legitimacy of the freedom to provide services in the EU.