EU Commission investigates possible advantages for state-licensed casinos in Germany

The casino laws in Germany provide for a specific levy for the operation of state-licensed bricks-and mortar casinos, the so-called “Spielbankenabgabe”. With the payment of this casino levy, casinos do not have to pay various general taxes, including corporate, income, and trade taxes.

That tax exemption has now been called into question by the EU Commission. On 9 December 2019, the Commission launched a formal investigation into possible advantages for state-licensed casinos in Germany, to assess whether the special tax treatment of the state-licensed casino operators is violating EU state aid rules.

As an example, §7 of the Berlin Casino Act stipulates the following: “The casino operator shall be exempt for the operation of the casino from the payment of those taxes which are subject to the legislation of the Land and which are directly related to the operation of the casino. In addition, the casino operator is also exempt from property tax and trade tax for the operation of the casino.” There are similar provisions in the other casino legislation in Germany.

The EU investigation was triggered by complaints from various gambling companies – who do not belong to the casino sector – concerning certain aspects of this specific tax regime, as well as an alleged guarantee for state-licensed casino operators to remain profitable.

The alleged guarantee of economic profitability could go back to case law of the Federal Constitutional Court. This Court proposed in its decision of 19 July 2000 (BVerfGE 102, 197, Resolution of the First Senate, 1 BvR 539/96) that, although the maximum amount of the gaming levies should be collected for the common good, they should be limited “in such a way that, while maintaining the share of the gross gaming revenue that is necessary for the economic existence of the respective casino operation in accordance with the principles of economic efficiency, the scale of the levy and distributive justice that the legislature intended to achieve would have been achieved.”

Behind this decision is a concern for public safety and order, to avoid an inappropriate tax burden on casino operators in order to be able to guarantee proper casino operations. This must be assessed in the context of the extremely high tax burden at the time. At the end of the 1990s, the tax rate from casino levies and other gaming taxes, at its peak, amounted to some 90% of gross gaming revenue.

The purpose of the EU investigation is to determine whether this special tax regime creates an unfair economic advantage for the operators of state-licensed casinos, compared to similar sectors, by creating a lower tax burden compared to the general tax rules.

Should the investigated tax regime be deemed advantageous in that sense, the consequences of such findings will depend on whether the support is genuinely in the wider public interest and if it aims to benefit society or the economy as a whole. The investigation must be taken quite seriously. In principle, unlawful state aid involves the risk of full repayment of the benefits corresponding to the economic advantage
The European Commission provides further information in its online register of state aid cases under the case numbers SA.44944 (tax treatment) and SA.53552 (alleged guarantee). Interested parties are entitled to comment. The Commission will consider all aspects before making a final decision.

The European Commission has also initiated a separate investigation with respect to alleged annual loss compensation payments and a capital injection by the State of North Rhine-Westphalia, in 2015, to the operator of the local state-owned casino (case number SA.48580).