A summary of the eGaming VAT issue arising in Germany following recent changes to the VAT place
of supply rules. An outline of the potential arguments against VAT being applied to eGaming services
in Germany, our suggested approach and estimate of costs.
With effect from 1 January 2015, the place of supply of eGaming services, where the operator is
located within the EU, falls to be the location of the customer. For operators located outside the EU
the effective date was 1 January 2010.
The starting point under EU VAT legislation is that eGaming services are exempt from VAT. However,
this is subject to any limitations or conditions laid down by each Member State.
German VAT rules limit the scope of VAT exemption to services which fall under, the betting and
gaming act (Rennwett-und-Lotteriegesetz) and which are subject to Gaming tax in Germany.
An issue arises due to the fact that the German gaming legislation does not cover eGaming services.
It only extends to sports betting and lotteries upon both of which is levied a 5% gaming tax on
Operators who supply eGaming services to German customers will be liable to pay German VAT at
the standard rate of 19%.
The German VAT liability would be calculated by treating gross win, gross gaming yield, or par fees /
rake as being inclusive of German VAT. (E.g. €100 of gross win creates an inclusive VAT charge of
For certain operators this creates a significant VAT liability in Germany. Where operators are located
outside the EU, such a liability could cover historic periods too.
Related German VAT litigation
German VAT legislation has been the subject of many challenges in recent years with a number of
cases being heard by the Court of Justice of the European Union (“CJEU”). A number of these cases
have related to betting and gaming and the VAT exemption applied in Germany. Such cases include
Linneweber and Leo-Libera.
In the case of Linneweber the CJEU found that German VAT legislation breached fiscal neutrality by
restricting the scope of the VAT exemption on gaming machines and other casino games to licensed
public casinos and applying VAT to such games where they were played at other venues.
Following this case, the German VAT exemption relating to betting and gaming was amended so that
VAT is payable in Germany on all gaming machine income and casino games regardless of the
In summary Leo-Libera sought to challenge the amendment to the German VAT exemption. It argued
that it was over-restrictive and that the purpose of EU VAT legislation is to exempt from VAT the
majority of betting and gaming services. The consequence of the amendments to the German VAT
legislation it stated was that the majority of betting and gaming services in German were now
taxable for VAT purposes which is contrary to EU law.
In support of its case it also argued that a VAT exemption cannot be limited to only betting and
lotteries but that it must also extend to other forms of gambling. However, the CJEU dismissed its
appeal on the basis that each form of gambling was not in direct competition with the other (eg
betting and gaming machines). In addition the Court found that the EU VAT legislation relating to
betting and gaming allowed EU Member States a broad scope to introduce limitations and
conditions into national legislation.
Consequently the appeal was dismissed and the German VAT legislation remains the same.
Potential lines of argument
Clearly, in the case of eGaming, any argument would need to be distinguished from Leo-Libera. It
would also have to be considered on a product-by-product basis given the different forms of
gambling provided (eg casino games, betting, poker, slots, bingo etc).
This should not be impossible as our argument would focus on the fact that in Germany, the relevant
VAT legislation seeks to tax a supply for VAT purposes dependent whether the supply is subject to a
liability to a German gaming tax. This would appear contrary to the EU principles of VAT whereby it
is the nature of the supply which should determine the VAT treatment.
In addition, there may also be merits with the following lines of argument, all of which will need to
- A ‘bet’ is a ‘bet’. German VAT legislation treats differently supplies of product which, by
nature, are the same. For example, when playing roulette, the player in effect places a fixed
odds bet on the outcome of the spin. The VAT exemption cannot be limited to sports
betting, but extended to include all forms of bets;
- The reliance on the scope of the Rennwett-und-Lotteriegesetz legislation for the German
VAT exemption rules does not allow for all supplies which are the same, or substantially
similar to be treated the same for VAT purposes. It creates a distortion of competition by
taxing for VAT purposes, “bets” which fall outside the scope of the legislation;
- For example, “bets” on non-sporting events would appear to fall outside the scope of VAT
exemption calling into question whether German VAT legislation is compatible with EU law;
- The method of delivery (land-based or online) should not affect the treatment of the supply
for VAT purposes;
- The way in which the German legislation differentiates supplies in the gambling sector lacks
any rational basis.
- A principle of VAT law is to allow the taxpayer the right to deduct VAT on business costs and
expenditure relating to the extent these goods and services are used for the purpose of
making taxable supplies. Where an operator is located in a Member State which treats
eGaming services differently to Germany for VAT purposes, this right is denied; and
- Was the right question asked in the case of Leo-Libera? Where EU VAT law states exemption
as the starting point, are Member States able to extend limits when amending National
Legal cases of relevance
In addition to the cases of Linneweber and Leo-Libera, referred to above, the following cases will also
need to be reviewed and considered including judgments and where applicable AG opinions.
The list is by no means exhaustive but examples include; Laara; Rank plc; K Oy; Henfling; Schindler;
Fischer; United Utilities etc. Together with cases referred to in these decisions and opinions.
In addition, the basic principles of EU VAT law should be revisited to identify additional lines of
argument not considered above.
Before considering whether to launch an appeal to the German tax authorities in relation to this
issue a full technical analysis and Counsel opinion should be undertaken.
Instructions to Counsel would need to be thorough and cover the nature of all eGaming products
supplied by the interested parties as well as revisiting the basic principles of EU VAT law.
In the event that a favourable opinion is received, eGaming operators could consider requesting a
repayment of VAT paid to date in relation to eGaming services to the German Tax authorities. In the
likely event that repayment is refused, operators would appeal to the German courts. A lead case
would be identified and a referral to the CJEU would be sought.
German VAT rules state that a request for overpaid VAT can be made within 3 years of the date that
the VAT was paid. As such there is no immediate urgency for seeking a request for repayment.
However, as the potential VAT liabilities at stake are significant, it would be prudent for operators to
seek advice at the earliest opportunity.