Why the notification procedure of sec. 17 para. 2 no. 2 Horse Betting and Lottery Act may be insufficient

By Maximilian Riege, Hambach & Hambach Law Firm

Nearly 50 sport betting providers are still waiting to obtain a federal license in Germany in the ongoing tender procedure in the state of Hesse. And yet, they are already obliged to pay turnover tax on sports betting offers provided to German customers. Most of the providers pay the tax: Since 1 July 2012 sports betting operators have paid around 200 million Euros in taxes to the German government, more precisely to the tax authority Frankfurt am Main III.

In the attached article, it is argued that there are reasonable doubts against the applicability of the corresponding tax clause in sec. 17 para. 2 no. 2 of the German Horse Betting and Lottery Act which stipulates a 5% turnover tax on all sports bets offered in Germany.

In the article published in the German tax review (Deutsche Steuer-Zeitung, DStZ), Prof. Dr. Englisch, Professor of Tax Law and Public Law, Managing Director of the Institute for Tax Law, Muenster University and Maximilian Riege, Junior Partner at Hambach & Hambach, argue that the German state has infringed its duty to notify the relevant tax clause under the EU Information Procedure Directive 98/34/EC.

The obligatory notification text of the German state from 27 June 2012 (see here) did not inform the EU Commission, the member states, or interested parties about the extension of the personal, territorial and factual margin of application of the tax burden to all sports betting offers provided in Germany, notwithstanding whether the bets are organized inside or outside of Germany. Instead, it only refers to racehorses as agricultural products as the products concerned but not to sports bets.

Furthermore, the brief statement of grounds only mentions sec. 10 of the Horse Betting and Lottery Act and the reduction of the federal horse betting tax from 16.66% to 5%. Neither the brief statement of grounds nor the extensive explanatory notes of the law provided with the notification message refer to the extended margin of application. The statement of the federal finance committee of the German Parliament which explicitly describes this impact of the amended sec. 17 para. 2 no. 2 was not provided during the notification procedure.

Therefore, the notification message may be described as incomplete if not misleading. Since transparency is one of the core elements of the notification procedure, there are strong legal arguments that the German state did not duly notify sec. 17 para. 2 no. 2. The lack of a due notification procedure leads to the inapplicability of the law until a due notification procedure including a standstill period has been completed.

Following the line of argumentation of Englisch and Riege, all tax payments made on the basis of sec. 17 para. 2 no. 2 of the Horse Betting and Lottery Act would have been made without legal obligation. Sports betting providers who paid taxes by virtue of sec. 17 para. 2 no. 2 can reclaim the paid amount from the tax authority.

The complete article in German by Maximilian Riege and Prof. Dr. Joachim Englisch is available under the following link:
http://www.timelaw.de/cms/upload/pdf/Seiten_aus_dstz_2013_08_Heftzusammenstellung.pdf

Source: TIME LAW NEWS 2/2013 (www.timelaw.de) Hambach & Hambach Law Firm