Introduction
The Commission, in decision 2025/317, spanning 60 pages with close to 300 recitals and concerning the special tax treatment of public casino operators in Germany, found that that treatment constituted unlawful and incompatible State aid that had to be recovered.[1]
Following a complaint by the German association of gambling machine operators [Fachverband Spielhallen], the Commission examined i) special tax rules applicable to public casinos and ii) ad hoc decisions of public authorities reducing the special taxes applicable to the public casinos in case of opening of new public casinos.
According to the decision, in Germany there is distinction between two types of games of chance. First, certain gambling machines can be freely operated in gambling halls or in restaurants. A licence is necessary to operate commercial gambling halls. Second, traditional casino table games [e.g. blackjack, roulette, poker, etc.] are in principle prohibited. However, German Länder may allow, by derogation, public casino operators to offer such games, through concessions and on terms decided by the Länder. The Commission decision concerns schemes in all 16 German Länder.
The tax treatment of public casino operators
First, the Commission outlined the taxes to which casino operators were subject. Broadly, they paid special taxes instead of the normal corporate tax. The former were intended to replace the latter. “(14) Public casinos operators are subject to the normal tax system as regards the income they generate from their non-gambling activities”. [e.g. restaurants]
“(15) As regards their gambling income […] and gambling-related income (e.g. entrance fees, tips, sale of gambling magazines, rental of ties and jackets), public casinos operators are subject to special taxes only applicable to them […] and exempted from a number of otherwise applicable taxes […], the exemptions being intrinsically linked to the special taxes”.
“(17) Those special taxes mostly use as a tax base the gross gambling income stricto sensu (‘GGI’, that is to say the bets placed by the players minus the winnings distributed to the players, Bruttospielertrag), which is the main source of gambling-related income for public casinos operators.”
“(18) The special taxes always include a so-called ‘casino tax’ (Spielbankabgabe) calculated on the basis of the GGI. In most Länder, the tax rate is progressive depending on the GGI.”
“(19) In addition to the casino tax, several laws of the Länder lay down an additional tax on the GGI, under different names (weitere Leistung(en), Zusatzabgabe, zusätzliche Leistungen).”
“(20) In all Länder, the laws on public casinos lay down a reduction of the amount of casino tax by the amount of (net) VAT to be paid by the public casinos operators (VAT offsetting mechanism, measure 1).”
“(27) In Germany, undertakings (including gambling halls) are normally subject to a series of general taxes, mainly income tax (Einkommensteuer) or corporate tax (Körperschaftsteuer) and the related solidarity surcharge (Solidaritätszuschlag), trade tax (Gewerbesteuer) and VAT.”
“(31) Public casinos operators are exempted from a number of those otherwise applicable taxes.”
“(32) Public casinos operators are exempted from ‘national taxes levied on income, wealth, turnover and from the lottery tax and the capital duty’. […] [They are also exempted] from corporate tax (or, if applicable, income tax) and related surcharges, such as the solidarity surcharge (Solidaritätszuschlag) […]”
(35) The objective of the special tax systems of the Länder (including the special taxes and the tax exemptions) is twofold.”
“(36) The casino tax and, more generally, all special taxes paid by the public casinos operators are considered to be a replacement for the other taxes from which the public casinos operators are exempted (Abgeltung). In addition, […], the profit of public casinos operators should not benefit private interests but should be ‘skimmed’ or ‘creamed off’ for purposes of public benefit (Abschöpfung).”
“(37) The special tax system applicable to public casinos operators in each Land indeed first aims at replacing the taxes from which the public casinos operators are exempted (Abgeltung), that is to say that the normal taxes are deemed to be paid in the form of a special tax. From that perspective, public casinos operators are not really exempted from the normal taxes: the tax exemptions applicable to those operators merely mean that their special taxes are deemed to replace the normal taxes; the tax exemptions thus simply aim at preventing double taxation and the amount paid under the special tax rules should in principle be the same as under the normal taxes.”
“(38) In addition, because the German legislator considered that the public casinos operators (regarded as monopolies) would otherwise make a ‘very high profit’ under the normal tax rules, the special tax rules aim at skimming (creaming off) the profit of these operators which would not have been creamed off under normal tax rules (Abschöpfung).”
The inseparable link between the special taxes and the exemptions from normal taxes
Next, the Commission established that indeed, the special taxes were levied as a substitute for the normal corporation taxes.
“(39) As consistently explained by the German authorities (quoting the case-law of the Federal Finance Court) and by the complainants, both sets of measures […] (the special taxes and the tax exemptions) are intrinsically linked and make ‘sense’ only if considered as a whole. The general idea of a special tax and of the corresponding tax exemptions was set out in the same law […] As highlighted by the Federal Finance Court, the tax exemptions alone are not justified by any ‘economic or socio-political reason’, they merely are the ‘necessary consequence’ of the existence of the special taxes applicable to public casinos operators.”
Existence of State aid
In order to determine whether the special taxes constitutes State aid, the Commission examined: “(118) […]
(a) the overall special tax treatment generally applicable to public casinos operators operating in [each] Land including a positive aspect (the special taxes imposed on public casinos operators) and a negative aspect (the exemptions from normally applicable taxes) (measure 5). This special tax treatment also includes the generally applicable reductions of the special taxes imposed on the public casinos operators, which are automatic and laid down in laws of the Länder, namely the reduction of the casino tax to offset the VAT (measure 1) and, if any, the reduction of the casino tax in the case of new public casinos’ openings (measure 2.a) and/or in other circumstances (measure 4.b); and
(b) the ad hoc decisions of the public authorities to reduce the special taxes applicable to certain public casinos operators, if any (measure 2.b and measure 4.c). These reductions are intrinsically linked with the special tax treatment applicable to the public casinos operators and must therefore be assessed as part of the 16 schemes. Formally, the legal basis to provide such reductions is indeed laid down in the same law of the Länder as the one laying down the other features of the special tax treatment. More substantially, these ad hoc reductions cannot be assessed on their own because they merely reduce the tax burden arising from the special tax rules, without it being possible to determine whether these ad hoc reductions as such provide an advantage compared to the normal tax rules (see recital (137) of the opening decision).”
Use of state resources
Tax reductions or exemptions are always funded by state resources.
Economic activity
The Commission correctly considered that casinos were undertakings. It also responded to German arguments to the counter. “(125) The fact that national law or national courts would not have regarded public casinos’ gambling activities as economic activities is not relevant, to the extent this qualification was not carried out in the light of Article 107(1) TFEU.”
“(127) The alleged exclusion of competition via a legal monopoly does not as such exclude the existence of a market and thus the qualification as undertaking.”
The Commission also rejected arguments that public casinos performed a public function. Providing gambling services was not an essential function or prerogative of the state.
Distortion of competition
The Commission stated categorically that “(131) the measures are liable to distort competition.” “(132) Such measures indeed favour certain economic operators over their competitors in a market where at least some competition exists or can exist. The fact that the public casinos operators would benefit from a legal monopoly to provide the games they offer does not alter that finding. The games they offer are at least to a certain extent in competition with the ones offered by other operators, even if they are not exactly the same.”
“(135) The alleged fact that gambling halls and public casinos would operate on different markets according to the Commission’s own decisional practice is irrelevant and wrong.”
“(137) Public casinos operators are also at least to a certain extent in competition with online gambling operators offering casino games or other games of chance.”
Effect on intra-EU trade
The Commission, first, clarified that “(142) public support can have an effect on trade between Member States even if the recipient is not directly involved in cross-border trade. A subsidy may for example make it more difficult for operators in other Member States to enter the market. Even a subsidy provided to an undertaking that provides only local or regional services may have an effect on trade where undertakings from other Member States could provide such services (also using the freedom of establishment) and the possibility is not purely hypothetical.”
“(144) It is sufficient to note that (i) public casinos and gambling halls are at least to some extent in competition, (ii) nothing prevents public casinos and commercial gambling halls from being operated close to each other (in the same city for example) and this is often factually the case, and (iii) nothing prevents such gambling halls from being operated or owned by foreign undertakings. Thus, a selective advantage to public casinos is liable to affect intra-Union trade by making it more difficult for companies from other Member States to enter the market and operate gambling halls in Germany.”
“(146) An advantage for public casinos operators is also such as to help them to attract foreign customers, especially in border regions. […] public casinos are mostly located in places attracting foreign customers such as major cities, touristic cities, airports or border regions.”
Presence of advantage
The Commission assessed the existence of advantage by examining whether the measures deviated from the normal tax. For this purpose, it first identified the reference system or the normal tax rules that applied to casinos.
It acknowledged at the outset that “(155) where the tax measure in question is inseparable from the general tax system of the Member State concerned, reference must be made to that system. On the other hand, where it appears that such a measure is clearly severable from that general system, it cannot be ruled out that the reference framework to be taken into account may be more limited than that general system, or even that it may equate to the measure itself, where the latter appears as a rule having its own legal logic and it is not possible to identify a consistent body of rules external to that measure. It is the Member State concerned which defines, by exercising its exclusive competence in the matter of direct taxation, the characteristics constituting the tax.”
Then it observed that “(156) the corporate tax and personal income tax – with the solidarity surcharge – and the trade tax are the taxes that apply generally to all undertakings on their income in Germany. Those taxes are applicable to public casinos operators when they carry out non-gambling related activities. Those taxes use as tax base and aim at taxing the profit.”
“(158) Public casinos operators are explicitly exempted from those normal taxes which would otherwise apply. The normal taxes are, for public casinos operators, deemed to be paid through the special taxes imposed on them (Abgeltung)”.
“(160) Furthermore, the tax treatment of public casinos operators cannot be considered as a separate system of reference as it is not simply a special purpose levy that would come – following its own specific logic – in addition to the normal taxes. On the contrary, it is meant to replace the normal tax rules.”
“(162) The German authorities […] do not explain at all why and to what extent the normal taxes would not apply to public casinos operators.” “(163) More generally, it is always possible – as Germany does – to find specificities characterising certain undertakings or certain economic sectors (be it only their particular activities or the non-fiscal regulatory framework applicable to them). Such specificities are not sufficient to consider that these undertakings or sectors would be subject to their own reference system when normal taxes would apply to them following the normal tax rules.”
“(166) It is […] true that the tax exemptions are a consequence of the special taxes. But the exemptions are only justified and so to speak ‘neutral’ (that is, merely preventing double taxation) if the special taxes indeed replace the normal taxes and do not lead to a tax burden lower than under the normal tax rules (because, in the latter case, there cannot be ‘double taxation’). As nothing ensures that the special taxes will lead to at least the same tax burden as under the normal tax rules”.
The special treatment confers an advantage
The analysis in this part of the decision is the core of the Commission’s reasoning. “(174) To assess whether the measures lead to an advantage, it is necessary to compare (the tax burden arising from) the special tax rules to (the tax burden arising from) the normal tax rules”.
Then the Commission referred extensively to the Fútbol Club Barcelona case-law [C-362/19 P]. In its judgment on that case, which was reviewed here on 30 March 2021 [https://www.lexxion.eu/stateaidpost/global-assessment-of-tax-schemes/], the Court of Justice ruled that the Commission had to take into account both the advantages conferred by a tax measure and any disadvantages which were created by the same measure. However, such a “global” assessment of the effects of a tax measure is necessary when there is mechanism for the explicit offsetting of advantages and disadvantages.
“(175) In order to determine whether a tax scheme provides an advantage, it is usually sufficient to compare ex ante the legal features of the measure under assessment with the normal tax rules. In cases involving a measure derogating from the normal tax rules, in particular in the France Telecom [C-81/10 P] and Fútbol Club Barcelona cases, the Court of Justice ruled that the advantage criterion is already met when a scheme grants a mere ‘potential’ advantage which may materialise only in certain circumstances.”
“(176) The case at hand is, […], similar to the France Telecom and Fútbol Club Barcelona cases, to the extent it is impossible to conclude ex ante that the special tax rules (combination of the tax exemptions and of the special taxes where the special taxes do not relate directly to the normal tax rules, contrary to a reduced rate for example) will automatically, generally and always lead to an actual advantage (or disadvantage). The amount of tax paid under the normal tax system and under the special taxes depends on random circumstances or choices freely made by the operators, which are not legal features of the tax regime that can be assessed ex ante. There is a possibility that the special tax rules may lead to an actual advantage in certain circumstances, which is sufficient to conclude that the measures provide an advantage for State aid purposes.”
“(177) In particular, because a specific group of operators is subject to a special tax treatment (the special tax schemes of the Länder applicable only to public casinos operators which replace the normally applicable tax rules), and because there is no general provision (such as a claw-back or offsetting mechanism automatically preventing that the special tax treatment is more advantageous compared to the normal tax rules, this regime provides an advantage to this group of operators.”
Compensation for a service of general economic interest?
Some public casinos argued that any favourable tax treatment was compensation for their provision of a service of general economic interest [SGEI]!! This is a preposterous argument. SGEIs meet important social needs. Member States define SGEIs and impose public service obligations on undertakings where the market on its own does not sufficiently provide them. It is ludicrous to claim that citizens must have access to gambling. In fact the purpose of regulating gambling activities is to limit what the market would otherwise want to offer and to prevent addiction. The Commission correctly observed that there was no act of entrustment, no parameters of compensation were defined in advance, there was no mechanism to prevent overcompensation and no selection of the providers through a procurement procedure.
Selectivity
The Commission again showed that the measures in question deviated or derogated from the reference system which was the normal system of taxation for corporations. The fact that the gambling activities or the entertainment provided by casino operators were somehow different from other activities was not a relevant issue as the purpose of taxation is to tax profits regardless of the precise nature of the activity that is taxed.
The Commission also examined, as it is required by the case law, whether the exemptions were justified by the structure or logic of the reference system.
First, it stated that “(201) it is up to Germany to explain how the prima facie selective measures can be justified (and thus not selective) by reasons deriving directly from the intrinsic basic or guiding principles of the reference system or by being the result of inherent mechanisms necessary for the functioning and effectiveness of the system.”
Then it noted that “(202) the German authorities merely stated that the constitutional principle of prevention of double and excessive taxation (Vermeidung einer doppelten und damit übermäßigen Besteuerung) should be taken into account.”
“(203) However, by merely mentioning the constitutional principle of prevention of double and excessive taxation, Germany did not explain how the (possibly unlimited) advantage provided by the measures could be regarded as justified by that principle, let alone be proportionate.”
Conclusion
Since all four criteria of Article 107(1) TFEU applied to the measures in question, the Commission concluded that they constituted State aid.
Then it examined whether the aid was existing or new and found that it was new, as the relevant tax rates and exemptions were amended over time. Consequently, in the absence of any notification, the aid was unlawful.
Next the Commission assessed the compatibility of the aid with the internal market. Tax exemptions which are not linked to particular investments are operating aid which is not normally compatible with the internal market. Not surprisingly, the Commission’s overall conclusion was that the tax measures constituted incompatible State aid that had to be recovered. In view of the multiplicity of tax exemptions granted by several public authorities at different levels of government, the task of recovery will be complex, time consuming and very costly in terms of the human resources that will be absorbed in that task.
[1] The full text of the decision was published in the OJ of 25 February 2025. It can be accessed at:
https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L_202500317
