Public casinos in Germany: EU Commission finds incompatible state aid in special tax rules

The European Commission has concluded that Germany’s special tax schemes for public casino operators are not in line with EU State aid rules. Germany must now recover the incompatible State aid, including interests, and abolish the tax schemes for the future.

The Commission’s investigation

In December 2019, the Commission opened an in-depth investigation to assess whether the special tax schemes applicable to public casinos operators in Germany are in line with State aid rules. The investigation followed complaints by competitors of the public casinos.

In Germany, public casinos operators (Spielbankunternehmen) are subject to special tax schemes (one scheme in each State, Bundesland) that replace a series of otherwise applicable general taxes, in particular corporate or income tax and a local entertainment tax.

The Commission’s assessment

Based on its in-depth investigation, the Commission found that the special tax schemes entail an economic advantage for the public casinos operators in the form of a potentially lower tax burden in comparison to the normal tax rules.

The Commission also found that, as a result of the design of the special tax rules, the advantage is not automatic, and it does not materialize in all tax years and for all operators. Therefore, it will be for the German authorities to determine whether or not an advantage was granted to the public casinos operators. According to the Commission’s preliminary calculations, the recent reductions of the special taxes in certain States may have led to advantages for at least some of the operators active in those States.

The Commission also considered the recent modification of the special tax rules in Hamburg. In this State, the legislator proactively introduced as from 1 January 2024 a new equalization tax to be paid by the public casinos operator. This tax is paid in case the operator’s tax burden under the special tax rules is below the tax burden it would bear under the normal tax rules. The Commission considered that this mechanism automatically prevents the operator from being granted an advantage, so that the special tax rules in Hamburg do not constitute State aid as from 1 January 2024.

Germany must now recover the incompatible aid, plus interest. As Germany will have to determine whether or not an advantage was granted to the public casinos operators and, if so, determine the amount to be recovered from each potential beneficiary of the incompatible aid, the total aid amount to be recovered is not known at this stage.

Background

According to Article 107(1) of the Treaty on the Functioning of the European, a measure shall constitute State aid if the following four cumulative conditions are met: (i) the measure has to be granted by Member States through State resources; (ii) the measure has to confer a selective economic advantage to certain companies, (iii) the advantage has to distort or threaten to distort competition, and (iv) the measure has to affect trade between EU Member States.

In cases involving a measure derogating from the normal tax rules, the Court of Justice of the European Union clarified that the advantage criterion is already met when a scheme grants a mere ‘potential’ advantage which may materialize only in certain circumstances or only in certain tax years.

EU State aid rules require that incompatible State aid is recovered in order to remove the distortion of competition created by the aid. There are no fines under EU State aid rules and the purpose of recovery is to restore the situation which existed in the internal market before the aid was paid. By paying back the unlawful aid, the beneficiary forfeits the advantage which it has enjoyed over its competitors.

For More Information

The non-confidential version of the decision will be made available under the case number SA.44944 and SA.53552 in the State aid register on the Commission’s competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.