German federal law complicates online gambling

The German federal government’s imposition of a new 5 percent turnover tax on sports betting, effective July 1st, has just added another layer of confusion to a regulatory scene already bedevilled by an EU-unfriendly treaty and the uncertainties surrounding which direction breakaway state Schleswig Holstein will take regarding independent licensing and regulation.

Federal German lawmakers tacked the new tax onto amendments to the federal Race Betting and Lotteries Act recently, requiring that operators accessing the German sports betting market pay 5 percent of turnover to the federal government.

In the normal course of events, a federal law supercedes provincial laws, and the new tax has the potential to derail Schleswig Holstein’s more business and operator friendly tax regime. Schleswig Holstein’s gambling laws acknowledge that the province cannot levy taxes on activities that are subject to tax imposed by the feds under the Race Betting and Lotteries Act.

The recent change of provincial government in Schleswig Holstein has put in office a government far less friendly to online gambling or leaving the German Treaty with other provinces, and the new federal tax may create further problems for SH licensees, which to date are mainly involved in sports betting.

One of those licensees, the UK gambling group Betfair, has already reacted to the new threat, saying that there are serious constitutional and legal questions surrounding the federal law, and hinting that it will turn to litigation rather than pay the new tax, which will have a constricting effect on business.

A defiant Betfair apparently intends to continue operating under its SH license and paying the tax required under that licence, implying that the company may refuse to pay the federal tax, confronting enforcement attempts in court if necessary.

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