Betfair has withdrawn its online sports betting exchange in Germany because of recent changes to the nation’s tax codes. The company released a statement to the market stating that the 5% tax on sports betting stakes was “unviable” for the continuation of the exchange business. Although Betfair will maintain a minimal presence in Germany with its poker and fix odds betting business, the withdrawal of the sports betting exchange represents a sizable loss for a company seeking to expand its reach in a toughening European market. In the fiscal year 2012, Betfair gained approximately 4% of its sports betting revenue from Germany, which translated to a gross contribution of £6 million.
Company officials stated that the taxation of stakes would severely hurt its core product in Germany. In July 2012, German federal states overwhelming voted for a 5% tax on stakes for 20 sports betting licences. One Northern German state has offered 12 licences under a favourable 20% taxation of gross profits and has continued to approve more operators. However, the expansion of a favourable business environment seems unlikely in light of recent legislation.
Betfair also plans to consult with tax authorities to clarify its position on the law governing the taxing of exchange stakes during the enactment period. The company has been arguing with German tax authorities that the 5% tax on stakes was not applicable due to the fact that it only facilitates customers to bet with each other rather than taking actual bets. Analysts estimate that the retroactive taxes could amount to £25 million during this period.
Betfair will continue to seek more favourable regulatory regimes such as those of Spain and Italy, who place a tax on gross profits of the betting exchange. The German-employed turnover structure taxes the total bets placed on the site. This particular structure leads to a heavier tax burden because total player bets surpass gross profits. Gambling companies such as Betfair hope that other European markets will not follow suit as countries continue to regulate online gambling.