Germany’s controversial new Interstate Gambling Treaty is set to come into force as scheduled on 1 July, after it was ratified by the required number of participating Federal States today.
Fifteen of Germany’s Federal States or Lander in December agreed a new four-year draft Treaty replacing the previous ban on the offer of games chance over the internet with a restrictive opening for sports betting, with up to 20 licences each costing €40m-€60m to be issued to private operators, with bets taxed at 5% of turnover. The offer of online poker and casino by private operators will remain prohibited, as it was under the prior Treaty.
As of today, the state parliaments of Mecklenburg-Vorpommern and Thuringia have now ratified the Treaty, meaning the 13-state threshold required for the law to take effect on 1 July has been passed.
The European Commission in March gave German authorities two years to prove the Treaty’s restrictions on freedom to provide gambling services justified its aims of better protection for players from crime, fraud and addiction, “in particular in view of the current development of the on-line poker market in Germany”. This followed the EC raising serious doubts over several elements of the Treaty, most notably over whether taxing sports bets at 5% of turnover while excluding other products would be economically viable, and also over the lack of data provided by the 15 Lander to back up their claim that the continuing ban on online casino and poker was necessary because the games were more vulnerable to rigging, money laundering and increased addiction risks.
Ulrich Goll, the deputy opposition leader in the Baden-Württemberg parliament that ratified the Treaty yesterday, warned that the new model was “inconsistent” and entailed legal risk.
Legal experts have levelled the latter charge at the accompanying tax amendment for the new Treaty to implement a 5% tax on the value of all sports bets ahead of 1 July. Legal experts have however warned that as well as resulting in a potential double tax burden for providers, “the different taxation of lotteries and on sport betting is not only doubtful regarding the constitutional principle of equality but also in the context of EU law”, providing “good arguments for providers to challenge successfully the planned taxation”, according to Olswang’s Christoph Enaux.
Lotteries currently pay 20% tax on the value of each ticket, while 96% of tax revenues from betting on horse racing are distributed to horse racing associations under the old Taxation Act dating back to 1922, a form of State Aid that will likely be raised as incompatible with EU law when the new sports betting amendment is notified, as required, to the European Commission.
At least 30 online gambling operators have applied for licences in the northernmost Land of Schleswig-Holstein (SH), that refused to back the new Interstate Treaty and instead passed its own Gambling Law providing for the issue of unlimited licences for all products based on a 20% gross profit tax. Since the licensing process began on 3 May, seven operators, including Betfair, bet365 and bwin, have received sports betting licences, with the Federal State revealing on 23 May that 24 other applications for sports and 17 for casino games (including poker) were in the licensing pipeline.
The new SH coalition government consisting of the SPD, Green Party and the SSW Danish minority parties that officially took power last Tuesday 12 June, however last week reiterated its intent to opt SH back into the Interstate Treaty backed by the other 15 states. It added that it would look into whether it would be possible to repeal the SH Gambling Act without becoming liable to pay damages to existing licence holders and if it could be amended to stop the issue of further licences under the regime without breaching competition law.