Despite developments in Germany, the regulatory situation remains unclear

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

The regulatory situation in Germany is still far from clear. This update provides an overview of the most important recent developments.

1. The Interstate Treaty on Gambling

The ratification of the new Interstate Treaty on Gambling, which was signed on 15 December 2011 by the governments of all German States apart from Schleswig-Holstein, is still on hold. The heads of the 15 signing States had agreed to forward the new Interstate Treaty for ratification to the States' parliaments only after having received the EU Commission's statement on the Treaty. On 20 March 2012, the EU Commission finally sent its statement to the States. In a nutshell, the Commission letter seems to be a political compromise rather than a clear statement on whether or not the new Treaty is in line with European law. On the one hand, the EU Commission criticises various elements of the new Treaty, arguing that the 15 German States have not provided enough evidence in order to assess whether the restrictions contained in the Treaty satisfy the goals pursued by the Treaty and respect the general principle of proportionality. This is particularly the case for the general ban on online casino games contained in the Treaty. On the other hand, the EU Commission generally welcomes the changes made by the German States and states that the notification procedure for the Interstate Treaty has now been terminated.

The EU Commission also stated that it will only be in a position to assess the compliance of the German gambling regulation with the requirement of a consistent and systematic approach once all relevant legislation has been amended and notified. The EU Commission highlighted the need for a continuous evaluation of the implementation and application of the Treaty.

With this political compromise, the EU Commission makes clear that it does not want to open any infringement proceedings against Germany at the moment. At the same time, the EU Commission provides private gambling operators with a lot of arguments which can be used if it comes to fighting potential prohibition decisions in court and bringing such cases to the ECJ.

After this reaction of the EU Commission, the notification of the new Interstate Treaty is formally finished, so the Heads of State will now forward the draft Treaty to the States' parliaments for ratification. It remains to be seen whether any of the States' parliaments will take account of the EU Commission's remarks and refrain to implement the Interstate Treaty into State law.

In view of the ambiguous signs from the EU Commission, the first reactions by German politicians were quite contrary. Kurt Beck, the Prime Minister of Rhineland-Palatinate, and Ralf Stegner, the Schleswig-Holstein opposition leader, celebrated the termination of the notification procedure and have no further concerns regarding the ratification of the Interstate Treaty. In contrast, the leaders of the Schleswig-Holstein government and private gambling providers criticised this opinion and see no basis for the ratification because of the missing positive final statement of the EU Commission.

Regardless of this ongoing process, the public lottery providers announced recently that they plan to introduce the so-called "Eurojackpot" lottery in Germany, which will offer jackpots of up to 90 million Euros. With this new system they hope to be compensated for some of the losses they claim to have incurred in the last few years because of the impact of the "old" Treaty.

2. The Schleswig-Holstein situation

While the new Interstate Treaty has still not been implemented into State Law, licences in Schleswig-Holstein under the more liberal Schleswig-Holstein Gambling Act could formally be awarded from 1 March 2012. Since an Ordinance which sets out the requirements that must be met by the applicants for a gambling licence entered into force on 26 January 2012, Schleswig-Holstein has received six formal applications for sports betting licences and one formal application from an online casino provider. However, no licences have yet been issued.

Furthermore, even if licences might be issued soon, the licensed operators will still not be able to offer their services to end customers as the necessary "Monitoring Ordinance" relating to the required level of performance and technical requirements has not yet been adopted. This Ordinance will require the provider to establish a player management system which ensures verification and validation of players and check lists of blocked players. As the Monitoring Ordinance also relates to Online Gambling offers, it will still have to be notified to the EU Commission once it has been agreed.

Regardless of these licensing requirements, the liberal regime in Schleswig-Holstein is attracting many operators. Some German providers have already started to offer online lottery services - which do not require a formal licence - to players who are resident in Schleswig-Holstein. These providers have also established a branch in the Schleswig-Holstein capital Kiel.

The future of the Schleswig-Holstein Act on Gambling will very much depend on the outcome of the May election in Schleswig-Holstein. The biggest opposition party, the SPD, is opposed to the Gambling Act and wants to join the Interstate Gambling Treaty if it wins a majority in the parliament. Even if the Social Democrats do take over the government in Schleswig-Holstein, it will be interesting to see whether the mindset of the Social Democrats might be changed if the first licences have already been issued by May and consequently Schleswig-Holstein would potentially have to pay high damages to the licensed operators for abolishing the Gambling Act.

3. Recent court cases

Prohibition orders for private gambling providers have recently been subject to the jurisdiction of German courts (of lower instance). In line with the jurisdiction of the European Court of Justice, some courts stated that the German gambling regulation is inconsistent and unsystematic and therefore does not fulfil the requirements of European law. Therefore, prohibition orders cannot be issued based on the current German law, but gambling providers still require a gambling licence for their business. This appears to be quite contradictory because at the moment there is no licensing procedure in Germany, except in Schleswig-Holstein, which is in line with European law.

4. Taxation of sports betting

The Bundesrat - the Federal Chamber of all German States - recently proposed a bill on sports betting, under which all kinds of sports betting would be taxed at a rate of 5% on the nominal value of each bet. The purpose of this bill is to include foreign sports betting providers which have not been taxed so far in Germany. If this federal bill is passed, the legislation of Schleswig-Holstein regarding the taxation of sports betting would not be applicable. In the legislation procedure the bill will next be considered by the Bundestag. In a committee hearing on 21 March 2012 several experts raised serious doubts about the bill as the different taxation of lotteries and sports betting is considered to violate the constitutional principle of equality. Furthermore. experts believe that the extension of tax liability to foreign gambling providers could cause a double taxation of these providers. Finally, the bill would also have an influence on the tax on horse racing bets. As most of the proceeds of these bets are paid back to the horse racing clubs, touching this tax would also lead to a state aid issue. Given these constraints, it is quite uncertain whether there will be a Federal betting tax in Germany in the near future.