DSWV report questions legality of German betting shop tax

27 March 2019

A new report commissioned by German operator body the Deutsche Sportwettenverband (DSWV) has claimed that a turnover tax levied on betting shops by local authorities across the country contravenes federal law.

The report argues that the local authority tax, which ranges from between 3% to 5% of turnover, means shops are taxed twice, as they also pay a 5% tax on stakes under the federal Rennwett- und Lotteriegesetz.

Its author, Director of the Institute for Economic and Tax Law at the University of Augsburg, Professor Gregor Kirchhof, said that this meant betting shops were effectively taxed twice on the same source of income. Kirchhof also noted that the two taxes were even calculated in the same way.

This, he said, meant that the local authority tax on betting shops amounted to a breach of the non-equivalency rule. This dictates that taxes levied by a municipality cannot be set on activities that are already taxed at a federal level. Therefore the local betting shop taxes are unconstitutional.

Furthermore, he notes that a local excise tax must measure the actual costs the customer incurs that relate directly to the local municipality.

Currently municipalities in Nordrhein-Westphalen, Baden-Württemberg and Hesse are taxing shops based on customer stakes. This, Kirchhof noted, is based on a 2017 ruling by the Federal Administrative Court that said the previous local authority tax on betting shop floor space was unconstitutional.

“With a brief note saying that a tax on wagers is ‘workable and appropriate’ the court has caused municipalities to breach the constitution,” he said. “The mention [of wagers as a basis for tax] is only briefly mentioned, not substantiated, and its constitutionality is not discussed.”

As a legally sound alternative to a turnover-based tax, he suggests that betting shops could pay a fixed rate based on the time each customer spends in the shop to watch live broadcasts of sports. Kirchhof said it is common for local consumption and excise taxes to be set at fixed rates whereby a lump sum is paid for a certain activity. In Berlin, for example, citizens must pay an annual tax of €120 per year if they have a dog.

DSWV president Mathias Dahms said that Kirchhof’s findings showed there was an urgent need for change if local municipalities wanted to avoid refunding large sums to betting shop operators.

“The DSWV would like to enter into dialogue with the municipalities over a new betting tax on a legally viable basis that will aid both parties, by ensuring tax revenues for the authorities and a fair rate for betting operators,” he said.

Dahms highlighted the fragility of the current turnover-based tax system by pointing out that Administrative Court of Minden in Nordrhein-Westphalen recently annulled a 3% turnover tax set by the city of Bielefeld on betting shops.