Brussels (Brussels Morning) – The European Commission has found that Germany’s special tax schemes for public casino operators are not in line with EU State aid regulations. Commission states that Germany must now retrieve the incompatible State aid, including interests, and repeal the tax schemes for the future.
Are Germany’s Casino Tax Schemes Violating EU Rules?
In December 2019, the EU Commission extended an in-depth investigation to consider whether the special tax schemes applicable to public casino operators in Germany are in accordance with State aid rules. The investigation followed objections by competitors of the public casinos. In Germany, public casino operators (Spielbankunternehmen) are subject to special tax procedures (one scheme in each State, Bundesland) that substitute a series of otherwise applicable general taxes, in certain corporate or income tax and a local entertainment tax.
Why Did EU Commission Deem German Casino Taxes Unfair?
Based on its in-depth inquiry, the EU Commission figured that the special tax schemes entail an economic advantage for the public casino operators in the shape of a potentially lower tax burden in comparison to the regular tax rules.
The Commission also concluded that, as a result of the design of the special tax rules, the benefit is not automatic, and it does not materialize in all tax years and for all operators. Thus, it will be for the German authorities to decide whether or not an advantage was given to the public casino operators. According to the Commission’s preliminary calculations, the recent drops of the special taxes in specific States may have led to advantages for at least some of the operators involved in those States.
The EU Commission also assessed the recent modification of the special tax rules in Hamburg. In this State, the legislator proactively submitted as of 1 January 2024 a new equalization tax to be paid by the public casino operator. This tax is spent in case the operator’s tax obligation under the special tax regulations is below the tax burden it would endure under the normal tax rules. The Commission evaluated that this mechanism automatically controls the operator from being granted an advantage, so that the special tax laws in Hamburg do not form State aid as of 1 January 2024.
How Must Germany Address Illegal State Aid to Casinos?
EU Commission states that Germany must now recover the inconsistent aid, plus interest. As Germany will have to decide whether or not an advantage was endowed to the public casino operators and, if so, choose the amount to be recovered from each possible beneficiary of the incompatible aid, the total aid amount to be retrieved is not known at this stage.
According to the Treaty on the Functioning of the European, a step shall constitute State aid if the following four incremental conditions are fulfilled: (i) the measure has to be given by Member States through State resources; (ii) the action has to confer a selective economic advantage to specific companies, (iii) the advantage has to warp or threaten to distort competition, and (iv) the effort has to affect trade between EU Member States.
EU State aid regulations require that incompatible State aid is recovered in order to terminate the distortion of competition created by the aid. There are no penalties under EU State aid rules and the purpose of recovery is to habilitate the situation which existed in the internal market before the aid was paid. By paying back the illegal aid, the beneficiary loses the advantage which it has enjoyed over its competitors.
