EUROPEAN COMMISSION

Brussels, 9.12.2019 C(2019) 8819 final

PUBLIC VERSION

This document is made available for information purposes only.

Subject: State Aid SA.44944 (2019/C ex 2016/FC) Tax treatment of public casinos operators in Germany and SA.53552 (2019/C ex 2019/FC) Alleged guarantee for public casinos operators in Germany (Wirtschaftlichkeitsgarantie) – Germany

Sir,

The Commission wishes to inform Germany that, having examined the information supplied by your authorities on the measure referred to above, it has decided to initiate the procedure laid down in Article 108(2) of the Treaty on the Functioning of the European Union.

1. PROCEDURE

(1) On 22 March 2016, the Commission received three complaints (hereinafter ‘the initial complaints’) filed by a trade association of 88 operators of gambling machines (Fachverband Spielhallen e.V.) and an operator of gambling machines (hereinafter ‘the complainants’). The complainants claim that operators of the public casinos1 (Spielbankunternehmer, hereinafter 'public casinos operators') in

1 Most of the time, the public casinos (Spielbanken) in Germany are operated by publicly-owned entities (the public casinos operators are owned by public bodies). Some of these operators (in certain German Länder) are or could be privately-owned. However, they are operated under a concession by the public authorities and under strict oversight and control by the public authorities. Because they are in their large majority publicly owned and in view of this close control of their operation by the Länder (in the context of the concessions) and of the wording of a 1933 law on ‘öffentliche Spielbanken’, the decision refers to the Spielbanken as 'public casinos' and to the Spielbankunternehmer as 'public casinos operators' even if some of them are privately-owned.

Seiner Exzellenz Herrn Heiko MAAS Bundesminister des Auswärtigen Werderscher Markt 1 D - 10117 Berlin

Commission européenne/Europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË - Tel. +32 22991111

Germany, which also operate gambling machines, receive State aid through three measures which allegedly distort the market for gambling services, namely:

• the mechanism by which the VAT to be paid by the public casinos operators is offset against the casino tax (Spielbankabgabe) paid by them. The complainants provided a list of the 16 legal acts adopted by the German Länder in that regard (the ‘first complaint’);

• the legal provisions which directly reduce (or on the basis of which the authorities of the Länder can reduce) the casino tax for newly opened public casinos, for example in the German Land of North Rhine-Westphalia ('NRW)’ (the ‘second complaint’);

• an unlawful reduction of the base of the trade tax and income tax paid by the public casinos operator in NRW by deducting the so called ‘profit skimming’ (Gewinnabschöpfung) (the ‘third complaint’).

(2) The three complaints referred to an attached paper including a 'detailed reasoning for the complaints'. This paper mainly detailed the first complaint (VAT offsetting mechanism) and invited the Commission to remove the measures complained about. Moreover, the complainants stated in the VAT related complaint (first complaint), that the unequal burden arising from the VAT offsetting was demonstrated by a comparison of the specific tax regime of public casinos operators with the normal taxation (Annex 9 to the complaints, establishing an abstract comparison of the overall tax burden of the two groups of operators – public casinos operators subject to their specific tax regime and gambling halls operators subject to the normal taxes – in the 16 German Länder).

(3) On 12 October 2016, the complainants submitted further information regarding the VAT treatment of public casinos operators.

(4) On 20 December 2016, the Commission services sent the complainants an administrative letter noting that the VAT offsetting mechanisms did not per se exempt public casinos operators in the 16 German Länder from paying VAT and thus that they did not (in themselves) provide them with an advantage. Regarding the two further complaints, they noted that the complaints focused only on the situation in NRW and that, based on the available information, the measures at stake also did not seem to grant per se advantages. More generally, the Commission services considered that the only way to establish the existence of an advantage was to compare the two different tax systems overall and observed that, based on the information provided by the complainants, the public casinos operators seemed to be at a disadvantage. In addition, they pointed out at elements suggesting that the contested measures could be existing aid (if aid).

(5) By letter of 9 February 2017, the complainants provided further information and contested the preliminary assessment made by the Commission services in the letter of 20 December 2016. They explained that the second and the third complaint (temporary reduction of the casino tax for newly opened public casinos and reduction of the income taxes) were based on the legal provisions existing in NRW. They also claimed that subjecting some operators of gambling halls in NRW to the specific tax system of the public casinos operator in NRW would lead to a lower tax burden than under the normal rules. They asked the Commission to open the formal investigation procedure. 2

(6) On 8 March 2017, the Commission services asked questions to Germany. The German authorities replied on 21 April 2017, explaining that the measures at stake did not provide an advantage and were not selective.

(7) On 30 March 2017, the Commission services met with the complainants.

(8) On 20 June 2017, the complainants submitted additional information regarding the VAT treatment of public casinos operators. They also confirmed that, in their view, the gambling halls in NRW would pay less tax under the special regime applicable to the public casinos operators. In parallel, the complainants also filed two further complaints concerning individual non-tax related measures allegedly favouring the public casinos operator in NRW, which are not covered by the present decision. A meeting was organized with the complainants on 28 June 2017.

(9) The complainants submitted further information on 30 August 2017. They argued that the comparison they made (subjecting some operators of gambling halls in NRW to the special regime of the public casinos operators and finding that they would pay less taxes) was sufficient to establish the existence of an advantage for the public casinos operators. They also considered that it would not be necessary, in order to establish that the special tax regime applicable to public casinos operators involves State aid, to demonstrate that it leads to a lower tax burden than under the normal tax rules, using as a basis for this comparison the actual economic/financial situation of the public casinos operators. In their view, the State aid assessment should focus on the abstract features of the scheme.

(10) On 1 August 2017, the Commission services asked further questions to Germany in relation to the information request sent on 8 March 2017. The German authorities replied on 21 September 2017.

(11) On 3 October 2017, the Commission services asked Germany further questions concerning the public casinos operator in NRW. The German authorities replied on 24 October 2017.

(12) On 12 January 2018, the Commission services sent the complainants an administrative letter. The Commission services maintained their preliminary view that, based on the available information, the measures at stake did not seem to grant an advantage to the public casinos operators, this preliminary finding being supported by figures concerning the public casinos operator in NRW. In addition, they pointed out at elements suggesting that the contested measures could be existing aid (if aid).

(13) By letter of 30 January 2018, the complainants requested access to the submissions by the German authorities in that case. This information was forwarded to the complainants on 5 February 2018, after the German authorities agreed to such disclosure of information.

(14) The complainants replied on 3 April 2018 to the Commission services’ letter of 12 January 2018. They asked the Commission to open the formal investigation procedure regarding the three measures complained about. They also complained about a further measure (alleged guarantee for the public casinos operators to make a minimum profit, the so called Wirtschaftlichkeitsgarantie) and asked whether the filing of a formal complaint was necessary for the Commission to examine it.

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(15) On 11 April 2018, the Commission services suggested to the complainants to keep separated the ongoing tax complaints and the new ground of complaint (the Wirtschaftlichkeitsgarantie), to the extent that the latter would not be only related to the tax treatment of public casinos operators.

(16) On 26 April 2018, the Commission services asked Germany further questions concerning the public casinos operator in NRW. The German authorities replied on 13 June 2018.

(17) On 7 June 2018, the Commission services asked Germany further questions concerning the measures at stake and their evolution over time. The German authorities replied on 6 August 2018.

(18) As a follow-up to an electronic message sent by the complainants on 18 June 2018, the Commission services replied on 21 June 2018 that, in their preliminary view, it was not clear that there was a State aid issue – because the available information indicated that there was no advantage for the public casinos operators at least in NRW, on which the complaint focused, for the years examined – and that it was also unclear whether the opening of the formal investigation procedure would be warranted – because some elements suggested that the measure could be, if aid, an existing aid measure.

(19) In a letter dated 2 July and received by the Commission services on 13 July 2018, the complainants stated that their complaint regarding the global comparison of the tax burden of the public casinos operators under the two regimes would cover all Germany (the 16 Länder). They further explained that the ‘profit skimming’ could not be included in the global comparison because it would not be a tax according to German tax law. They also stressed that, apart from NRW, ‘profit skimming’ only exists in 5 other Länder. They claimed that the contested measures would not be existing aid.

(20) On 26 September 2018, the complainants required access to the latest submissions by the German authorities in that case. This information was forwarded to the complainants on 28 September 2018, after the German authorities agreed to such disclosure of information.

(21) On 1 and 4 October 2018, the Commission services asked the German authorities further clarifications regarding the second and third complaint. The German authorities replied on 26 October 2018.

(22) On 23 October 2018, the Commission services sent the complainants a letter inviting them to clarify the material and geographical scope of their complaints. The Commission services explained that geographically, the first complaint seemed to concern all 16 German Länder (a list of the 16 laws of the Länder setting up offsetting mechanisms was provided). However, materially, it seemed to focus on the reduction of the casino tax by an amount equal to the VAT due by public casinos operators (VAT offsetting), and not (more generally) on the difference in the overall tax burden of public casinos operators (the latter being, according to the complainants2, the mere consequence of the offsetting mechanism). Regarding the two other complaints, the Commission services stressed that, on the basis of the

2 Submission of 9 February 2017, p. 6-7.

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submissions of the complainants so far, these complaints seemed to only concern NRW. This was because the complainants only described the legal provisions existing in NRW, mentioned the casino tax operators of NRW as beneficiaries, and merely vaguely referred to the possibility that there would be other similar provisions in other German Länder. Regarding in particular the third complaint (deductibility of the ‘profit skimming’ so called Gewinnabschöpfung), the Commission services also asked whether the complainants were targeting a provision of the Land NRW or a national provision that would specifically allow the alleged deductibility of the ‘profit skimming’ from the income tax base in NRW.

(23) The complainants submitted the requested clarifications on 29 November 2018. They considered that the issue of the overall tax burden (mainly linked with the first complaint) was already touched upon in their replies of 9 February 2017 and 3 April 2018. They also recalled that they mentioned the guarantee (Wirtschaflichkeitsgarantie) on 3 April 18. They considered that the second complaint also covered all 16 German Länder. Regarding the third complaint (deductibility of the ‘profit skimming’ in NRW), they explained that the complaint is directed against Article 14 of the law of NRW (laying down the ‘profit skimming’), that there are in NRW no specific provisions regarding the determination of the tax base of taxes on income and that taxes are not deductible from the tax base of taxes on income.

(24) On 18 December 2018, the Commission services asked the German authorities further questions regarding the overall tax burden that the public casinos operators in all 16 German Länder would bear if they were subject to the normal tax rules. They also inquired about other possible temporary reductions of the casino tax (not only for newly opened public casinos) in all 16 German Länder. Germany replied on 7 and 15 March 2019.

(25) On 21 December 2018, the Commission services replied to the complainants’ letter of 29 November 2018 noting that, with that letter, the complainants clearly extended the initial complaints (especially the first complaint) to the issue of the existence of two different tax systems as such (comparison of the overall tax burden under the two tax systems). Regarding the second complaint (temporary reduction of the casino tax for newly opened public casinos), the Commission services took note of the complainants’ wish to extend the geographical scope of the initial complaint and invited the complainants to submit information regarding the other 15 German Länder. Regarding the third complaint (deductibility of the ‘profit skimming’ in NRW), the Commission services asked the complainants to confirm that they actually complained about the NRW law on the ‘profit skimming’ even though they still claimed that there is in NRW no specific provision regarding the determination of the corporate tax and trade tax base. The Commission services also underlined that, as already signalled on 11 April 2018, the guarantee (Wirtschaftlichkeitsgarantie) seemed to be a separate issue so that the filing of a separate complaint (and the filling-in of the required complaint form) would be necessary in order for the Commission to better understand the issue and, in particular, its legal basis and actual consequences for the public casinos operators.

(26) The complainants replied by letter of 9 January 2019 observing that the issue of the existence of two different tax systems as such was already explicitly raised in their letter of 30 August 2017.

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(27) On 4 February 2019, they filed an additional formal complaint concerning the guarantee (Wirtschaftlichkeitsgarantie) (the ‘fourth complaint’). According to that complaint, Germany would, on the basis of the case law of the German Federal Court of Finances, guarantee the public casinos operators to have a reasonable commercial profit (‘ein angemessener unternehmerischer Gewinn’). This would materialize through possible reductions of the casino tax rate in certain Länder.

(28) The complainants also provided on 4 February 2019 the information requested by the Commission services on 21 December 2018 concerning the second complaint (temporary reduction of the casino tax for newly opened public casinos). Their letter described legal mechanisms existing in Baden-Württemberg, Hesse, Mecklenburg-Vorpommern, Lower Saxony, Saarland and Saxony, but confirmed that the third complaint focused on the provision in the NRW law.

(29) On 11 April 2019, the Commission asked follow-up questions to the German authorities regarding the submissions made by them on 7 and 15 March 2019 and on the qualification of the measures at stake as existing aid (if aid). The German authorities replied on 13 September 2019 and on 14 May 2019. The Commission services sent further questions on the qualification of the measures at stake as existing aid (if aid) on 21 June and 16 September 2019. Germany replied on 27 August and 22 October.

(30) On 11 July and 8 October 2019, the Commission also asked further questions to the German authorities regarding individual reductions of the special tax paid by public casino operators. Germany replied on 23 August and 23 October.

(31) On 9 October 2019, the complainants filed a formal request pursuant to Article 265 TFEU, calling the Commission to adopt a decision.

2. DESCRIPTION OF THE MEASURES AND BACKGROUND OF THE CASE

2.1 Organization and regulation of gambling in Germany

(32) The German legal system distinguishes between two types of games of chance.

(33) On the one hand, certain gambling machines can be freely operated by specialized gambling halls or by restaurants, provided that the rules of the regulation on games (Spielverordnung) are complied with. According to the gambling halls regulations of the Länder (Spielhallengesetze) and to the German commercial ordinance (Gewerbeordnung), a licence is necessary to operate commercial gambling halls (gewerbliche Spielhallen hereinafter ‘gambling halls’).

(34) On the other hand, live gaming or casino games (blackjack, roulette, poker, etc.) (i.e. so called 'großes Spiel' or ‘Tischspiel’) and other gambling machines are considered to be too risky and offering such games is in principle prohibited. By derogation to that rule, the German Länder are competent to allow certain entities (the public casinos operators) to offer such games, through concessions granted at Länder level, on the basis of the conditions laid down by the laws of the Länder on public casinos (Spielbankgesetze).

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2.2 Tax treatment of public casinos operators

(35) Public casinos operators are subject to the normal tax system as regards the income generated from their non-gambling related activities (for example restaurants)3. The taxation of the non-gambling related activities is thus not included in the scope of the present decision (except to the extent required by the assessment of measure 3 below, see section 3.1.4.6).

(36) As regards their gambling income (income from casino games and gambling machines) and gambling-related income (e.g. entrance fees, tips, sales of gambling magazines, rental of ties and jackets), public casinos operators are subject to a specific tax regime (2.2.1) and exempted from a number of otherwise applicable taxes (2.2.2), the exemptions being the consequence of the special tax (2.2.3).

2.2.1 The special taxes applying to public casinos operators for their gambling related income

(37) For their gambling income (in the broad sense, i.e. encompassing the gambling income stricto sensu as well as the gambling-related income such as tips or entrance fees, sales of gambling magazines, rental of ties and jackets), public casinos operators are subject to a specific tax system laid down, in each Land, in a law of the Land (Spielbankgesetz). While the features of these special tax systems of the Länder were at the beginning rather homogenous (one tax on the gross gambling income – hereinafter ‘GGI’, Bruttospielertrag – with a high rate of 80%), each Land progressively developed its own system.

(38) This specific tax system today mostly uses as tax base the gambling income stricto sensu (‘GGI’, i.e. the bets placed by the players minus the winnings distributed to the players), which is the main source of income4.

(39) This specific tax system always includes 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.

(40) 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).

(41) In all Länder, the laws on public casinos lay down a reduction of the amount of casino tax by the amount of VAT to be paid by the public casinos operators (see below measure 1).

(42) Some of these taxes on GGI are also sometimes automatically reduced by the laws on public casinos of the Länder when new public casinos are opened (see below measure 2.a).

3 In certain Länder, the public casinos operators are however subject to an additional special tax on the profits arising from such non-gambling related activities (see for example Article 14 of the Spielbankgesetz of NRW). 4 In certain Länder, the tips are also taxed. But the other (more ancillary) gambling-related sources of income are not subject to special taxes (only VAT applies) and their taxation is deemed to be covered by the casino tax.

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(43) In certain Länder, the additional taxes on GGI are by law reduced in circumstances other than the opening of new public casinos (see below measure 4.b).

(44) These taxes on GGI (or some of them) can in certain Länder be temporarily reduced, for the past or the future, by individual decisions of the public authorities concerning one or several public casinos operators (see below measures 2.b and 4.c).

(45) In addition to these taxes on the GGI, several laws of the Länder lay down an additional tax on the tips (Troncabgabe).

(46) In addition to these taxes on the gambling turnover, several laws of the Länder5 lay down an additional tax on the residual annual profit (Jahresergebnis or Gewinn) (i.e. turnover minus costs) of the public casinos operators, calculated using various methods and under various names (Gewinnabschöpfung, weitere Abgabe, Gewinnabgabe, Abführung des Überschusses).

(47) All these taxes are compulsory payments without counterpart, laid down unilaterally by the Länder in their laws, and the sums collected are transferred to the Länder (public authorities). The laws of the Länder sometimes provide that the money collected has to be used by the Länder to finance specific public expenses in the general interest.

2.2.2 The normal taxes from which public casinos operators are exempted

(48) 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 VAT6.

(49) The main features (tax base and tax rate) of VAT, corporate tax and income tax are laid down at national level. Corporate tax and income tax are general taxes on profit and VAT is a general tax on turnover. Trade tax is another general tax on profit: the tax base (Messbetrag) is defined at national level, together with a minimum rate, but the municipalities can set the rate (Hebesatz).

(50) Apart from these general taxes, undertakings offering gaming services are also usually subject to a specific municipal tax, the entertainment tax (Vergnügungsteuer), except in Bavaria. The Länder are competent to allow the municipalities to introduce the entertainment tax. The features (especially the rates) of such taxes are laid down at municipal level within the framework (maximum or minimum rate, tax base) set by the Land. Usually, the tax is calculated as a percentage of the amounts spent by the entertained person (bets, entrance fee) or of the GGI generated by the entertaining entity, a lump-sum per entertaining device (gambling machine) or per surface dedicated to the entertainment activities.

5 In Baden-Württemberg (since 2012), Berlin (since 2010), Mecklenburg-Vorpommern (since 2004), Lower Saxony (since 2005), NRW (since 2007), Rhineland-Palatinate (since 2016), Saarland (since 2013), Saxony-Anhalt (since 2009), Schleswig-Holstein (in 2010-2012) and Thuringia (since 2011). 6 The Gesellschaftsteuer (‘capital duty’: tax on the sales of company shares) was abolished in 1992 and the Vermögensteuer (wealth tax) is not levied anymore since 1997 (and was never levied in the East German Länder).

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(51) The normal tax rules for several entities may thus vary depending on a series of conditions (the trade tax and entertainment tax rate depends on the location of the operator, corporate tax and personal income tax are alternatively applied depending on an entity’s legal form) and can evolve over time.

(52) Public casinos operators are exempted from a number of otherwise applicable taxes.

(53) According to Article 6(1) of a 1938 law still in force (the ‘1938 law’)7, public casinos operators are exempted from 'national taxes levied on income, wealth, turnover and from the lottery tax and the capital duty'. Following a 1954 administrative agreement (Verwaltungsabkommen) interpreting that provision, Article 6(1) of the 1938 law is regarded as exempting public casinos operators from corporate tax (or, if applicable, income tax8) and related surcharges (such as the solidarity surcharge Solidaritätszuschlag introduced in 1991) and from VAT. But the VAT exemption (replaced by another provision in 1968) was later abolished in April 2006 and public casinos operators are subject to the normal VAT rules (see below section 3.1.4.3 for more details). Although Article 6(1) would also constitute a basis for an exemption from the lottery tax (Lotteriesteuer), that provision is of no effect since public casinos operators do not organize games or events that would be subject to that tax9. The capital duty (Gesellschaftsteuer) and the wealth tax (Vermögensteuer), explicitly mentioned by Article 6(1), have been abolished in 1992 and 1997 respectively10 and these exemptions thus had in practice no impact since then.

(54) Moreover, according to Article 6(2) of the 1938 law, 'the extent to which public casinos operators are to be exempted from taxes of the Länder and of the municipalities is to be determined' by the competent ministers. On the basis of that provision, the German authorities (namely the Länder, i.e. the competent authorities for taxation of Spielbankunternehmen) adopted further specific provisions specifying the scope of the exemption from taxes of the Länder and of the municipalities.11 According to the German authorities, these provisions12 have

7 Reichsverordnung über öffentliche Spielbanken vom 27.7.1938, Article 6: 1. ‚Der Spielbankunternehmer ist für den Betrieb der Spielbank von den laufenden Steuern des Reichs, die vom Einkommen, vom Vermögen und vom Umsatz erhoben werden, sowie von der Lotteriesteuer und von der Gesellschaftssteuer befreit. 2. Inwieweit der Spielbankunternehmer für den Betrieb der Spielbank auch von Landes- und Gemeindesteuern zu befreien ist, bestimmt der Reichsminister der Finanzen im Einvernehmen mit dem Reichsminister des Innern‘. 8 If the operator is a Personengesellschaft (non-incorporated company) which is transparent for income tax purposes, the income/corporate tax exemption applies at the level of the Gesellschafter (shareholders/associates). 9 This was clarified by two judgments of the Federal Court of Finances on 10.7.1968 (II 94/63, II 95/63 BStBl II S. 829, and II R 139/66). 10 See footnote 6. 11 Such tax exemptions were sometimes (at the beginning) laid down in individual acts (contracts, decision authorizing the entity to operate a public casino, ministerial decisions), but they are now laid down directly in the laws of the Länder on public casinos (Spielbankgesetz) in all Länder and they apply to all public casinos operators – (see Annex 3 for a list of the current laws of the Länder). 12 The laws of the Länder generally exempt public casinos operators from taxes which are 'subject to the legislation of the Länder' ('der Gesetzgebung des Landes unterliegen') and/or which are 'in direct relationship with the operation of the public casinos' ('im unmittelbaren Zusammenhang mit dem Betrieb der Spielbank'), which covers the Vergnügungsteuer.

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the effect of exempting public casinos operators from the trade tax13 and, where it exists, the entertainment tax14. The trade tax exemption for public casinos operators is also laid down specifically in Article 3(1) of the trade tax law (Gewerbesteuergesetz) since 199515.

2.2.3 The inseparable link between the special taxes and the exemptions from normal taxes in view of the objective of the special tax regime

(55) The casino tax and, more generally, all specific 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 (Abgeltungssteuer). In addition, according to a 1933 law16 (‘the 1933 law’), the profit of gambling operators should not benefit private interests but should be 'skimmed' for purposes of public benefit (Abschöpfung).

(56) The purpose of the special tax system (including the special tax and the exemptions) is twofold. It is meant to replace the taxes from which the public casinos operators are exempted (Abgeltung) i.e. the normal taxes are deemed to be paid in the form of a special tax17. From that perspective, public casinos operators are not substantially/really exempted from the normal taxes: the tax exemptions applicable to these operators merely mean that their special taxes are deemed to replace the normal taxes and the tax exemptions thus simply aim at preventing double taxation18. In addition, because the public casinos operators would otherwise make a ‘very high profit’, the special tax rules aim at imposing a higher tax burden than under the normal rules (Abschöpfung): as recalled by the German courts, the objective of the tax system applicable to public casinos operators is to ‘cream off’ their revenues because the public casinos operators (as monopolies) are deemed to be highly profitable businesses (under normal tax rules). The underlying idea is to tax as much as possible the profits resulting from a socially unwanted but inevitable activity and from a business shielded from competition, an objective which the normal tax system could not achieve in the view of the German authorities at the time19. There is however a limit within that second objective. The

13 The German Länder in their submissions, the federal authorities (see Gesetzesbegründung zum JStErgG of 18.12.1995) and the Verwaltungsabkommen von 1954 consider that the trade tax is covered by Article 6(2) of the 1938 law. In recent cases, the Federal Court of Finances (BFH) implicitly regarded the trade tax as covered by Article 6(1) (see Gerichtsbescheid of 20.7.2016, IX R 39/16 and Beschluss of 30.10.2014, IV R 2/11) but these cases did not specifically concern the distinction between Article 6(1) and Article 6(2) of the 1938 law. 14 The exemption from entertainment tax is also sometimes mentioned in the entertainment tax laws of the different cities. 15 Article 11 of law of 18.12.1995 Jahressteuergesetz 1996, BGBl. I 1995, S. 1959 16 Law on the authorization of public casinos (Gesetz über die Zulassung öffentlicher Spielbanken) of 14 July 1933. 17 Both the complainants and the German authorities consider the casino tax to be a Abgeltungssteuer. See also judgment by the Federal Court of Finances of 21 January 1954 (BFH, V D 1/53 S): ‚Im Ergebnis läuft dies darauf hinaus, daß mit der Spielbankabgabe die genannten Steuern als abgegolten angesehen werden können oder daß deren Erhebung eine Art Doppelbesteuerung hervorrufen würde.‘ 18 See BFH 21.01.1954 - V D 1/53 S: ‘Die Befreiungsbestimmung des § 6 Abs. 1 liegt auf einem anderen Gebiet, nämlich auf dem der Vermeidung einer etwaigen Doppelbesteuerung’. 19 See judgment of the Federal Constitutional Court of 19.7.2000 (BVerfG, Urteil vom 19. Juli 2000, 1 BvR 539/96, BVerfGE 102, 197 ff): 'Deshalb, aber auch weil Spielbankgewinne ... aus einer an sich unerwünschten, die Spielleidenschaft des Menschen ausnutzenden Tätigkeit stammen, sollen sie im Prinzip nicht den Spielbankunternehmern verbleiben, sondern abgeschöpft und … zur Förderung sozialer,

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profit of the public casinos operators should be creamed off as far as possible but the special tax rules should leave the operators an 'appropriate' profit (less than the 'very high' profit that they would get under the normal rules). The disadvantage should thus not become excessive20. At the same time, the objective of the special tax system, as confirmed by the case law, necessarily implies that the special tax scheme cannot give rise to an advantage21.

(57) As a consequence and as consistently explained by the German authorities (quoting the case law of the Federal Court of Finances22) and by the complainants, both sets of measures described above (the special taxes and the 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 (in 1938). 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 specific taxes applicable to public casinos operators. There would not be any tax exemption for the public casinos operators without a special tax. Public casinos operators could thus be seen as not ‘substantially’ exempted from normal taxes as they are subject to a tax regime deemed to replace these taxes (and even lead to a higher tax burden).

2.3 Scope of the complaints

(58) The scope of the complaints has been clarified over time. While the complainants initially only contested certain specific features of the tax system applicable to the

kultureller oder sonstiger gemeinnütziger Zwecke verwendet werden‘. See also judgment of the Federal Court of Finances of 8.3.1995 (BFH, Urteil vom 8. März 1995, II R 10/93, BStBl II 1995, 432): ‚Mit der Konzession zum Betrieb einer Spielbank wird regelmäßig die Möglichkeit zur Erzielung sehr hoher Gewinne eröffnet. Diese Gewinne sollen zugunsten des Staatshaushalts möglichst weitgehend, d.h. bis zur Wirtschaftlichkeitsgrenze abgeschöpft werden. Dem Unternehmer soll lediglich ein angemessener Gewinn verbleiben. Dieses Ziel könnte mit der herkömmlichen Besteuerung nicht erreicht werden. Zur Verwirklichung dieses Ziels ist daher eine besondere Regelung erforderlich, die mit der Spielbankabgabe angestrebt wird. Die möglichst hohe Abschöpfung soll einerseits durch den - gemessen an den herkömmlichen Steuern - exorbitant hohen Steuersatz erreicht werden, andererseits dadurch, dass die Spielbankabgabe nicht nach dem Gewinn, sondern nach dem Bruttospielertrag bemessen wird, d.h. die Kosten des Spielbankunternehmers sich nicht abgabemindernd auswirken‘. 20 If all the profit of the public casinos operators were creamed off (a tax on turnover can even lead to losses), this would lead them to bankruptcy and would defeat the general purpose of the laws on gambling (channelling gambling into legal offers controlled by the public authorities). 21 Judgment by the German Federal Court of Finances (BFH) of 8.3.1995 (II R 10/93, BStBl II 1995, 432): ‚Diese Gewinne sollen zugunsten des Staatshaushalts möglichst weitgehend, d.h. bis zur Wirtschaftlichkeitsgrenze abgeschöpft werden. Dem Unternehmer soll lediglich ein angemessener Gewinn verbleiben. Dieses Ziel könnte mit der herkömmlichen Besteuerung nicht erreicht werden.‘ 22 Judgment by the Federal Court of Finances of 21 January 1954 (BFH, V D 1/53 S): ‚In engem Zusammenhang mit § 5 steht die Befreiungsbestimmung des § 6 der Verordnung. Die beiden Bestimmungen stehen zueinander in Wechselbeziehung insofern, als die Befreiung von den im § 6 Abs. 1 genannten Steuern die notwendige Folge der bis an die Grenze der Wirtschaftlichkeit vorgesehenen Abschöpfung der Spielerträge durch die Spielbankabgabe ist. Denn es wäre kein wirtschaftlicher oder sozialpolitischer Grund irgendwelcher Art einzusehen, Spielbankunternehmer von den im § 6 Abs. 1 aufgeführten Steuern freizustellen, wenn nicht bereits die die Spielerträge in weitestem Umfange erfassende Spielbankabgabe die Möglichkeit zur Erhebung anderer Steuern wegnimmt.‘ See also judgment of the Federal Court of Finances of 8.3.1995 (BFH-Urteil vom 8.3.1995 (II R 10/93, BStBl. 1995 II S. 432): ‚Auf der anderen Seite wird diese Regelung der Spielbankabgabe nur dadurch praktikabel, daß ihr eine umfassende Befreiung von den übrigen Steuern gegenübersteht (vgl. § 6 der Spielbankenverordnung 1938, § 5 NSpielbG 1973). Die Regelung über die Spielbankabgabe einerseits und die umfassende Steuerbefreiung andererseits stehen in untrennbarem Zusammenhang.‘

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public casinos operators with a specific focus on one Land (NRW), they progressively expanded the scope of their complaints to ultimately encompass the existence of a special tax system for public casinos operators as such, and the alleged favourable tax treatment of public casinos operators in the whole of Germany.

(59) In view of the clarifications provided by the complainants, the Commission considers that the complaints cover the following groups of measures relating to the tax treatment of public casinos operators concerning their gambling-related income (except for measure 3 which concerns their non-gambling income):

 Measure 1: the VAT offsetting mechanisms introduced by all 16 German Länder after 200623;  Measure 2: the provisions of 7 laws of the Länder on public casinos (Spielbankgesetz) reducing (measure 2.a) or allowing the authorities of the Länder to reduce the casino tax rate in the first years of operation of a public casino24, as well as the actual implementation (if any) of this possibility (measure 2.b)25;  Measure 3: the deduction from the tax base of the trade tax and the corporate tax of the sums paid as ‘profit skimming’ (Gewinnabschöpfung) for the public casinos operators in NRW (this concerns the non-gambling activities of the casinos, for which they are subject to the normal taxes);  Measure 426: the alleged guarantee to public casino operators in all 16 Länder to make a reasonable commercial profit (measure 4.a) and the explicit provisions of 9 laws of the Länder on public casinos reducing (measure 4.b) or allowing the authorities of the Länder to reduce the casino tax in specific cases27, as well as the actual implementation (if any) of this possibility (measure 4.c)28;  Measure 5: the overall tax system (as such) generally applicable to public casinos operators with regard to their gambling related activities, which would induce a lower tax burden compared to the rules applicable to operators of gambling halls.

(60) Each of these measures encompasses in reality several sub-measures each of which can involve an individual aid measure and/or an aid scheme. To the extent that the analysis of these sub-measures calls for a common assessment, these sub-measures are examined together under the respective measures 1 to 5. A separate reference to the sub-measures is made when their specificities call for a separate assessment.

23 See Annex 3. 24 See Annex 2 (A). 25 See Annex 1. 26 In the context of the fourth complaint (concerning the Wirtschaftlichkeitsgarantie), the complainants also note that the public authorities in NRW would have at different occasions taken other non-fiscal measures to offset the losses of public casinos (compensation of losses, capital injection). This (non-fiscal) aspect of their complaint is not covered by the present decision as it is examined separately (see recital (8) above). 27 See Annex 2 (B). 28 See Annex 1.

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3. ASSESSMENT

3.1 Existence of State aid

(61) According to Article 107(1) of the Treaty, ‘any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.’

(62) The qualification of a measure as aid within the meaning of this provision requires the following cumulative conditions to be met: (i) the measure must be imputable to the State and financed through State resources; (ii) it must confer an advantage to an undertaking; (iii) that advantage must be selective; and (iv) the measure must distort or threaten to distort competition and affect trade between Member States.

3.1.1 State resources and imputability to the State

(63) To constitute State aid, a measure must both be imputable to the State and financed through State resources.

(64) All measures contested by the complainants and covered by the present decision are tax measures, imputable to a public authority (central State/Länder/municipalities) and involving public resources, to the extent they would provide a selective advantage. Indeed, where the result of a measure is that the State forgoes revenues, which it would otherwise collect from an undertaking in normal circumstances, the condition of affectation of public revenues is fulfilled:29

- This is the case for the legal provisions introduced by all 16 Länder to reduce the casino tax by the amount of the VAT due by the public casinos operators (measure 1); - the reduction of the casino tax rate in the first years of operation of a casino provided for by certain laws of the Länder (or granted by the public authorities on the basis of these laws) (measures 2.a and 2.b); - the reduction of the trade and income tax resulting from the deduction from the relevant tax base of the sums paid as ‘profit skimming’ (Gewinnabschöpfung) in NRW (measure 3); - the alleged guarantee to have the level of casino tax reduced to ensure the profitability of public casinos operators (measure 4.a), - the reduction of the casino tax or other special taxes in certain circumstances, either automatically by certain laws of the Länder (measure 4.b) or decided by the public authorities for certain public casinos operators (measure 4.c) - and more generally the overall tax system applicable to public casinos operators, to the extent that it would induce a lower tax burden for them than under the normal tax rules (measure 5).

29 Judgment of the Court of Justice of 16 May 2000, France v Ladbroke Racing Ltd and Commission, C- 83/98 P, EU:C:2000:248, paragraphs 48 to 51. Likewise, a measure allowing certain undertakings a tax reduction or to postpone payments of tax normally due can amount to State aid, see Judgment of the Court of Justice of 8 September 2011, Paint Graphos and Others, Joined Cases C-78/08 to C-80/08, EU:C:2011:550, paragraph 46.

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3.1.2 Undertakings

(65) The German public casinos offer services (especially gambling services but also catering services) against remuneration (entrance fees, a fraction of the bets, prices) on a market (see below recitals (68) and (69) concerning distortion of competition). They are thus undertakings carrying out economic activities for State aid purposes.

3.1.3 Distortion of competition and effect on intra-Union trade

(66) According to a well-established case law, it is not necessary to demonstrate that an aid has an actual effect on trade between Member States, but only that it is liable to affect such trade30. In particular, the Court of Justice has ruled that ‘where State financial aid strengthens the position of an undertaking as compared with other undertakings competing in intra-[Union] trade, the latter must be regarded as affected by the aid.’31

(67) Furthermore, public support can have an effect on trade between Member States even if the recipient is not directly involved in cross-border trade; the subsidy may for example make it more difficult for operators in other Member States to enter the market32. Even a subsidy provided to an undertaking, which 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)33.

(68) In the case at hand, all measures contested by the complainants and covered by the present decision are, to the extent they would provide a selective advantage to the public casinos operators, a priori liable to distort competition and affect intra EU trade. Such measures would indeed favour certain economic operators over their competitors in a market where at least some competition exists or can exist, as evidenced by the complainants34, even if the gambling machines operated by the public casinos operators and by the commercial gambling halls are not exactly the same35.

30 Judgment of the Court of Justice of 14 January 2015, Eventech v The Parking Adjudicator, C-518/13, EU:C:2015:9, paragraph 65; Judgment of the Court of Justice of 8 May 2013, Libert and others, Joined Cases C-197/11 and C-203/11, EU:C:2013:288, paragraph 76. 31 Judgment of the Court of Justice of 14 January 2015, Eventech v The Parking Adjudicator, C-518/13, EU:C:2015:9, paragraph 66; Judgment of the Court of Justice of 8 May 2013, Libert and others, Joined Cases C-197/11 and C-203/11, EU:C:2013:288, paragraph 77; Judgment of the General Court of 4 April 2001, Friulia Venezia Giulia, T-288/97, EU:T:2001:115, paragraph 41. 32 Judgment of the Court of Justice of 14 January 2015, Eventech v The Parking Adjudicator, C-518/13, EU:C:2015:9, paragraph 67; Judgment of the Court of Justice of 8 May 2013, Libert and others, Joined Cases C-197/11 and C-203/11, EU:C:2013:288, paragraph 78; Judgment of the Court of Justice of 24 July 2003, Altmark Trans, C-280/00, ECLI:EU:C:2003:415, paragraph 78. 33 Judgment of the Court of Justice of 24 July 2003, Altmark Trans, C-280/00, EU:C:2003:415, paragraphs 77 and 78. 34 The complainants quoted the public report on the annual accounts of the public casinos operators of NRW for 2015 (p. 21), according to which competition by commercial operators of gambling and by illegal gambling offer had consequences on the profitability of public casinos operators in Germany. 35 Gambling machines allowed in public casinos are apparently more addictive than gambling machines operated in gambling halls, calling for a higher standard of player protection. See case C-453/02, paragraph 10 (quoting the opinion of the German tax administration in German court proceedings): 'the Finanzamt Gladbeck pointed out that the stakes and winning opportunities in the case of gaming machines installed in

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(69) The fact that the public casinos operators would benefit from a legal monopoly to provide the games they offer does not seem to alter that finding. The games they offer are at least to a certain extent in competition with the ones offered by online operators. Public casinos operators are also to some extent in competition with gambling halls in the market of gambling machines and with other undertakings in the broader market of entertainment.

(70) The measures at stake could also hinder companies from other Member States to enter the market or allow public casinos operators to attract foreign customers, especially in border regions, or, using their strengthened financial situation, to enter more easily foreign markets or attract foreign investment36.

(71) Consequently, at this stage, the Commission considers that the measures at stake are, to the extent they would provide a selective advantage, liable to distort or threaten to distort competition and to have an effect on intra-Union trade.

3.1.4 Selective advantage

(72) As a matter of principle, to assess the existence of an advantage the financial situation of the undertaking following the measure should be compared with its financial situation if the measure had not been taken37.

(73) In particular, in relation to tax measures, in order to evidence a possible tax advantage, it is necessary to assess whether the tax treatment granted to an entity provides it with an advantage in comparison to the normal tax rules38.

(74) To be considered State aid, a measure must be selective, in the sense that it must favour only certain undertakings or the production of certain goods. According to established case law, the assessment of the material selectivity of a measure takes place in three steps: first it is necessary to identify and examine the common or ‘normal’ regime (‘system of reference’) applicable in the Member State concerned. Second, it is in relation to this common or ‘normal’ tax regime that it is necessary to assess and determine if any advantage granted by the tax measure at issue may be selective. This has to be done by demonstrating that the measure derogates from that common regime inasmuch as it differentiates between economic operators that, in the light of the objective pursued by that regime, are in a comparable factual and legal situation. Third, if such derogation exists, it is necessary to examine whether it results from the nature or general scheme of the taxation system of which it forms part and could hence be justified by the nature or logic of the system. In this context, it is for the Member State to show that the differentiated tax treatment derives directly from the basic or guiding principles of that system.

casinos are significantly higher than those in the case of gaming machines which are lawful outside casinos’. 36 For example, the main shareholder of the operator of the Spielbanken in Berlin is an Austrian company. 37 See Judgment of the Court of Justice of 2 July 1974, Italy v Commission, 173/73, ECLI:EU:C:1974:71, paragraph 17. 38 See for example Judgment of the Court of Justice of 15 December 2005, Unicredito Italiano SpA v Agenzia delle Entrate, Ufficio Genova 1, case C-148/04, ECLI:EU:C:2005:774, paragraphs 50-52; Judgment of the Court of Justice of 8 December 2011, France Télécom SA v Commission, C-81/10 P, ECLI:EU:C:2011:811, paragraph 24.

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(75) The assessment of the advantage is thus closely linked with the assessment of the selectivity criterion (where the existence of a derogatory tax treatment is also assessed in comparison to the reference framework i.e. the normal tax rules). As also stressed by the Court of Justice39, the determination of the reference framework is of particular importance in the case of tax measures since the very existence of an advantage may be established only when compared with ‘normal’ taxation. The Commission will thus first present below (3.1.4.1) the normal tax rules (reference framework), against which the measures at stake need to be assessed.

(76) The Commission will then carry out the examination of measure 5 which encompasses the 16 special tax regimes generally applicable to public casinos operators in the 16 Länder (3.1.4.2). As explained below, each of these regimes includes as an integral part of it 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), the reduction of the casino tax in case of new public casinos' openings (measure 2.a) and in other circumstances (measure 4.b).

(77) In a third stage, the Commission will assess the remaining measures targeted by the complainants, namely the VAT offsetting mechanism (measure 1 – section 3.1.4.3), the reductions of special taxes for certain public casinos operators (measures 2.a, 2.b, 4.b and 4.c – section 3.1.4.4), the alleged guarantee to make a reasonable profit (measure 4.a – section (3.1.4.5) and the reduction of the tax base of the corporate/income tax and trade tax for the public casinos operators in relation to their non-gambling related income (measure 3 – section 3.1.4.6).

3.1.4.1 The normal tax rules

(78) As described more in detail in section 2.2.2 above, the relevant taxes applying generally to all undertakings’ income are corporate tax/personal income tax – with the solidarity surcharge – and trade tax40. These taxes are applicable to public casinos operators when they carry out non-gambling related activities. These taxes use as tax base the (net) profit: according to the general rules of income taxation, ‘expenses induced by the business operations’ (‘durch den Betrieb veranlaßte Aufwendungen’) are indeed deductible from the tax base41. While the tax rates of corporate tax/personal income tax and of the solidarity surcharge are laid down uniformly at national level, the municipalities can set (within certain limits) the rate of the trade tax. The normal tax rules may thus vary depending on the location of the operator (the trade tax and entertainment tax rate depends on the location of the operator) and its legal form (corporate tax and personal income tax are alternatively applied depending on an entity’s legal form).

39 Judgment of the Court of Justice of 6 September 2006, Portugal v Commission, C‑ 88/03, EU:C:2006:511, paragraph 56. 40 VAT is also one of the generally applicable taxes but public casinos operators are subject to the normal VAT rules, also for their gambling activities (see below 3.1.4.3). It thus does not seem necessary to mention that tax (or other general taxes which are not deemed to be replaced by the special taxes i.e. from which public casinos operators are not exempted) for the assessment. 41 See Article 4 (1), (3) and (4) of the income tax law. See article 8 (1) of the corporate tax law, referring to the income tax law. See article 7(1) of the trade tax law, referring to corporate tax law and income tax law.

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(79) In addition, undertakings offering gambling (entertainment) services are also – except in Bavaria – generally subject to a specific tax on entertainment (entertainment tax). The features (especially the rates) of such taxes are laid down at municipal level within the framework (maximum or minimum rate, tax base) set by the Land.

(80) As described more in detail in section 2.2.3 above, the normal taxes are, for public casinos operators, deemed to be paid through the special taxes imposed on them and, in addition, these special taxes aim at imposing a higher tax burden on these operators compared to the normal tax rules. The special taxes applicable to the public casinos operators thus have, on the one hand, the function of replacement taxes and, to the extent they lead to a higher tax burden, the function of a specific surcharge (additional tax).

3.1.4.2 The special tax rules generally applicable to public casinos operators for their gambling related activities (measure 5)

3.1.4.2.1 Advantage

(81) According to the case law, several interventions of the State must be regarded as a ‘single intervention’ in particular when ‘having regard to their chronology, their purpose and the circumstances of the undertaking at the time of those interventions’ they are so closely linked to each other that they are ‘inseparable’ from one another42. The Commission has a duty to consider complex measures in their entirety in order to determine whether they confer on the recipient undertaking an economic advantage which it would not have obtained under normal market conditions43. When a public intervention entails different (positive and negative) consequences for a company, the Commission must take into account the cumulative effect of these consequences to assess the existence of an advantage44.

(82) In that regard, as explained in section 2.2.3 above, the tax exemptions and the special rules applicable to the public casinos, are the two non-severable parts/components of one complex measure and shall, following the case law mentioned in the previous recital, be assessed together. The special rules applicable to the public casinos operators are defined in each Land and include in particular the measures mentioned by the complainants in the context of measures 2.a and 4.b i.e. the reductions of the casino tax and other special taxes that, in the laws of the Länder, apply automatically and generally to all public casinos operators, under certain conditions. They also include the (automatic) reduction of the casino tax to take into account the subjection of public casinos to VAT as of 2006 (so-called 'offsetting mechanisms', see measure 1).

(83) To assess whether these special tax rules lead to an advantage, it is necessary to compare (the tax burden arising from) these special tax rules generally applicable to public casinos operators in the 16 German Länder to (the tax burden arising from) the normal tax rules.

42 See Judgment of the Court of Justice in Joined Cases C-399/10 P and C-401/10 P, Bouygues SA, ECLI:EU:C:2013:175, paragraphs 103 and 104. 43 Case T-427/04 and T-17/05, France et France Télécom/Commission, paragraph 199; Case C-39/94 SFEI and Others, paragraph 60; Case T-11/95 BP Chemicals v Commission, paragraphs 169 and 170 44 Judgment of the General Court of 13 September 2013, Poste Italiane, T-525/08, ECLI:EU:T:2013:481, paragraph 61.

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3.1.4.2.1.1 Comparison of the tax burden of public casinos operators under the (automatic) special tax rules generally applicable to them and under the normal rules

(84) As argued by the complainants, the usual method to compare two tax systems is based on a comparison of the abstract/legal features of the two tax systems (inter alia tax base, tax rate) to see whether the special tax system provides an advantage compared to the normal tax regime. Because it needs to focus on the legal features of the respective tax regimes, such a comparison cannot take into account optional reductions of the casino tax which are, by definition, not set generally in advance for all operators. Such measures, decided on a case-by-case basis by the public authorities, for specific public casinos operators, are not part of the tax regimes generally applicable to public casinos operators (measure 5). The effect of such measures should however be taken into account in a second step, once the automatic effect of the schemes (one per Land) has been assessed, to see if, overall, the relevant operator or operators benefitted from a favourable tax treatment compared to the normal rules, taking into account both the effect of the special tax rules generally applicable to all public casinos operators and the specific reductions which these operators enjoyed (see below 3.1.4.4.2 the assessment of measures 2.b and 4.c).

(85) In the present case, a mere (abstract) comparison of the legal features of the two systems (namely on the one hand the normal rules generally applicable to all companies and on the other hand the special tax rules generally applicable to public casinos operators) is not straight forward because the tax system of the public casinos operators is, in all Länder, fundamentally different from the normal tax rules which it is deemed to replace. While the tax system of the public casinos operators only or mainly (depending on the Länder) relies on turnover taxes (casino tax and additional taxes on the GGI as well as VAT), the normal tax system relies, apart from turnover taxes (entertainment tax and VAT), also on taxes on profit (corporate tax or income tax and trade tax), thus it would not be meaningful to compare the applicable (overall) rates45. There are also differences in the tax base of the turnover-based taxes: while the casino tax is based on the GGI (including VAT) sometimes with certain deductions, the entertainment tax is based either on the GGI (including VAT) or the amount of bets or a lump sum. In addition, certain gambling related income of the public casinos operators (entry fees, income from sales of magazines, Garderobegelder...) is deemed to be taxed by the casino tax, but is not included in its tax base.

(86) More generally, such comparison is difficult because the amount of tax paid under the two systems depends on random circumstances or choices freely made by the operators and which are not legal features of the tax regime.

(87) These elements, which are specific to each public casinos operator, can have consequences on the special tax rules to be applied and the resulting tax burden:

- As mentioned above, the casino tax and the additional taxes on the GGI have, in most Länder, a progressive rate structure depending on the GGI (the higher the

45 For example there are in some Länder no taxes on profit in the special system (which would point to an advantage to the public casinos operators) but the taxes on turnover in the special system have in general a much higher rate than under the normal system (which would point to a disadvantage for these operators).

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GGI, the higher the marginal tax rate and thus the higher the average tax rate), but it is impossible to a priori/abstractly set the rate (for example among the different rates laid down by the law of the Land) which should be used for the comparison (the average rate depends on the GGI/size of the public casinos). - The laws of the Länder on public casinos sometimes directly lay down an automatic reduction of the casino tax rates in case of new openings of public casinos (or limit certain additional special taxes in view of a certain profitability ratio), but it is impossible to a priori/abstractly choose a date of opening of a new additional public casino (new location) by a public casinos operator or even to consider that such additional opening would take place (or the profitability of the public casinos operators). It would thus be difficult to determine whether the casino tax rate to be used for the comparison would be the one generally laid down in the law of the Land or the one laid down in case of openings of new public casinos (or in case of reduced profitability). - It is also impossible to determine a priori the amounts of gambling-related turnover besides the GGI (i.e. entry fees, income from sales of magazines, Garderobegelder...). The gambling related turnover of public casinos operators is only subject to VAT, but not to the casino tax (the latter is however deemed to replace the normal taxes also for these other sources of gambling-related income). Because the net VAT collected with regard to this gambling-related turnover (which includes gambling related income on top of the GGI) is taken into account in the context of the VAT offsetting mechanism, it leads to a reduction of the casino tax.

(88) Also the normal tax rules to be applied for the purpose of the comparison depend on the specific situation of each public casino operator:

- The entertainment tax (base and rate) and the trade tax (rate) depend on the location of the activities, but it is impossible to a priori/abstractly define in which city (or cities) the public casinos would be located. - Depending on their legal form, the public casinos operators can be or not tax transparent for corporate/income tax purposes and can be taxed under corporate tax or income tax (which implies, in particular, the application of different rates). But it is impossible to a priori/abstractly assign the public casinos operators one particular legal form because such a particular legal form is (generally) not required by the laws of the Länder on public casinos.

(89) Carrying out a comparison of the legal features of the special tax rules applicable to public casinos operators and the normal tax rules would thus imply that the Commission makes several assumptions regarding the public casinos or their operators (locations, date of openings, level of GGI, level of costs, legal form etc.), so that the outcome of the comparison would not only depend on the existence of two legal tax systems, but would also reflect the arbitrary choices made for the comparison46. This would not be appropriate.

46 For example, in order to carry out such a comparison (in Annex 9 to the initial complaints), the complainants arbitrarily considered that the public casinos operators had no costs at all (which transformed taxes on profit into taxes on turnover, thus artificially increasing the tax burden under the normal rules). At a later stage, the complainants arbitrarily considered that the cost ratio of public casinos operators should be similar to the cost ratio of gambling halls – even if the public casinos offer a much wider range of games compared to the gambling halls, and under very different conditions.

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(90) At the same time, because a specific group of operators is subject to a special tax regime, it is however also not possible to rule out the existence of an advantage, in the absence of a general provision (such as a claw-back or offsetting mechanism47) automatically preventing that an advantage arises from the different tax rules. The absence of a mechanism ensuring that the special tax regime applicable to public casinos operators is not more advantageous compared to the normal tax rules means that this regime involves potentially an advantage for these operators. Also, the fact that the rates of the special tax (casino tax and additional taxes) paid by the public casinos operators decreased in the period under review (see below 3.3.2.1.2) constitutes an indication that the schemes at stake could, following that change, provide advantages48. Because the casino tax rate of 80% existing when public casinos were first opened aimed at reaching a higher tax burden than under the normal rules (so-called Abschöpfung objective, see recitals (55) and (56) above), a reduction of the casino tax rate (which can lead to an advantage) indeed constitutes an indication that the aim of the special tax rules may not be reached.

(91) In conclusion, at this stage, it cannot be excluded that the special rules applicable to public casinos operators provided an advantage, in particular in the absence of a claw-back mechanism.

(92) So as to determine the amount of advantage, which has materialised during the ten years before the first request for information was sent by the Commission to the German authorities (on 8 March 2017), it seems therefore useful to carry out a more precise comparison of the tax burden of public casinos operators under the special and the normal rules during that period.

3.1.4.2.1.2 The materialisation of this advantage since 8 March 2007

(93) This more precise comparison needs to take into account the specifics of the different public casinos (operators) and to compare the tax burden they would have to pay under the normal tax rules with the tax burden induced by their specific tax system, taking into account only the generally applicable features of the schemes, in particular the automatic measures complained about in the context of measures 2.a and 4.b (automatic reductions of the casino tax and other taxes, see below) and the (automatic) reduction of the casino tax to ‘offset’ the subjection of public casinos to VAT as of 2006 (see measure 1), such ‘offsetting mechanisms’ being an integral part of the special tax regimes applicable generally to public casinos operators. This will allow verifying whether these specific tax schemes of the Länder as such involve an advantage.

(94) Moreover, for the operators that also benefited from ad hoc decisions of the public authorities to reduce their special taxes, on a case-by-case basis, it would seem necessary, in a distinct and additional step, to also take into account the possible advantages (or additional advantages) introduced by these measures (see below measures 2.b and 4.c).

(95) In this context, the concrete calculations provided by the complainants themselves tend to show that public casinos operators in NRW in 2014 paid more taxes under

47 See judgment of the Court in C-81/10 P, France Télécom v. Commission, paragraph 50. 48 The rates of the entertainment tax followed an opposite trend.

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the specific system than under the normal tax rules49. This finding was confirmed by preliminary calculations made by the German authorities (for the tax years 2013-2017). In their submission of 29 November 2018, the complainants claimed that the calculations made by Germany for 2013 were wrong, but the modified comparison that they submitted still leads to the same outcome (more taxes paid by the public casinos operators under the special tax system).

(96) The complainants however consider that these calculations are not sufficient to prove that the special tax regime of public casinos operators in NRW does not grant them an advantage.

(97) They first claim that gambling halls (in NRW) would pay less tax if they were subject to the special tax rules applicable to the public casinos operators50. But this finding (even if confirmed) would only be relevant to prove that the special tax regime, if it was applicable to the gambling halls, would be more beneficial to them. However this would not evidence the existence of aid for the public casinos operators. Also, on substance, this result stems from the fact that the casino tax in NRW is a progressive tax on the GGI meant to apply on high amounts of GGI (as is generally the case for the public casinos, but not for the gambling halls), so that the highest rates of the tax are actually applied. Thus, the special tax regime would seem to lead to low average tax rates for (small) gambling halls with low GGI (as the ones operated by the complainants), but to much higher average casino tax rates for (big) public casinos with high GGI51. In addition, the comparison made by the complainants seems flawed, as it did not take into account taxes on the annual profit of the public casinos operators, claiming that these were not taxes.

(98) The complainants secondly argue that public casinos operators would pay more taxes under the normal regime, if their cost structure were (more) similar to the one of the gambling halls (i.e. if the public casinos operators had lower costs). It is true that the level of cost has a direct impact on the tax amounts paid under the two tax systems, as explained in recital (87) above. It could also be true that the NRW public casinos operators’ cost structure (costs/turnover ratio) is higher than the one of the gambling halls. However, there is no reason, in the context of a concrete comparison, not to rely on the concrete situation of the public casinos operators as it is. Arbitrarily attributing to the public casinos operators the cost structure of certain gambling halls of NRW is not justified, especially because objective differences can explain the different cost structure between the two categories of operators52. Thus, it would in any event not be appropriate to resort to the unrelated

49 Submission of 9 February 2017, page. 41 50 Submission of information of 9 February 2017, p. 40-41 (and Annex 1a to 1f) and 20 June 2017 p. 6-11 (and Annex 1 to 6). 51 The complainants in particular used the casino tax rules applicable in Rhineland-Palatinate, where the first million of GGI is not taxed (the 50% tax rate – including the additional contributions (weitere Leistungen) – kicks in for GGI above 1 million €), resulting to 0 casino tax for a small operator (GGI below 1 M€). 52 As regards staff costs for example, gambling halls only operate gambling machines, which requires less staff. On the contrary, public casinos operators have to hire croupiers for the other games than gambling machines and surveillance personnel to comply with the regulatory framework and control the players. See the public report of the public casinos operator in Baden-Württemberg for 2010: 332 staff are required for the großes Spiel which generated about 30 M€ turnover (9,6 M€ Tronc + 19,6 M€ GGI) [0,1 M€ per staff] while only 59 staff are required for gambling machines which generated 35,6 M€ turnover [0,6 M€ per staff].

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cost structure of the gambling halls to assess the tax burden of public casinos operators under the normal tax rules.

(99) At the same time, although the complainants’ arguments are not convincing, it is not possible at this stage to conclude, based on the preliminary and disputed calculations for a limited number of tax years and only for one Land, that none of the special tax regimes of public casinos operators leads to an advantage in any of the 16 German Länder.

(100) In view of the limitation period of 10 years that Article 17 of the Procedural Regulation establishes for the Commission’s power to order recovery of unlawful aid, it seems appropriate to carry out this comparison for a period of 10 years back from the first action taken by the Commission, namely the information request sent by the Commission to the German authorities on the matter on 8 March 2017 (to the extent that the measures at stake do not constitute existing aid (if aid), see Section 3.3 of this decision).

(101) The Commission thus needs to examine, in the context of the formal investigation, whether public casinos operators enjoyed an advantage because of their subjection to special tax rules as of 8 March 2007. In that context, it will also examine any measures that the German authorities might have taken or may commit to take in the future to avoid that such possible advantage actually occurs.

3.1.4.2.2 Selectivity

(102) As noted above, to be considered State aid, a measure must be selective, in the sense that it must favour only certain undertakings or the production of certain goods and the assessment of the material selectivity of a measure takes place in three steps which will be examined in the following recitals.

3.1.4.2.2.1 System of reference

(103) To assess the selectivity of a measure, it is first necessary to identify and examine the common or ‘normal’ regime (‘system of reference’) applicable in the Member State concerned. As described in section 3.1.4.1 above, undertakings offering gaming services in Germany are, as other undertakings, normally subject to a series of general taxes on their gambling activities (corporate/income tax, trade tax53). To the extent that they provide gambling (entertainment) services, undertakings are also in most Länder subject to a specific tax on entertainment (entertainment tax). The taxes generally applicable to gaming operators, namely corporate/income tax, trade tax and, if applicable, entertainment tax therefore constitute the reference framework against which the selectivity of the specific tax regime(s) for public casinos operators should be assessed.

3.1.4.2.2.2 Derogation from the reference system

(104) Second, it must be assessed if the measure at stake derogates from that ‘normal’ regime inasmuch as it differentiates between economic operators that, in the light of the objective pursued by that regime, are in a comparable factual and legal

53 VAT is also one of the generally applicable taxes but public casinos operators are subject to the normal VAT rules, also for their gambling activities (see below 3.1.4.3).

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situation. As described in more details in section 2.2.1 above, public casinos operators are exempted from the taxes to which other undertakings are normally subject, namely corporate/income, trade tax and – to the extent that these other undertakings provide entertainment services – entertainment tax. Instead they are subject to a very specific tax regime54 involving different taxes (with different names, bases and rates) laid down by each Land. This specific system is meant to replace the normal taxes from which public casinos operators are exempted (corporate tax/income tax and the related surcharges, trade tax and entertainment tax).

(105) In the light of the objectives of corporate/income tax (and the related surcharges) and trade tax, namely to raise revenues by imposing a payment on companies depending on their profit, all companies performing economic activities (such as gambling) are in a comparable situation, to the extent they make profit. In that regard, the fact that public casinos operators would operate on the basis of legal monopolies is not relevant, especially because such monopolies were deemed by the German legislator to be very profitable, so that taxing them seems consistent with the objectives of the general taxes on profit at stake. Similarly, the fact that public casinos operators would be subject to other specific taxes (which will be taken into account in the assessment of the advantage) or to specific regulatory rules regarding the prevention of addictive behaviours or the fact that the games offered in public casinos are different from the ones offered by the private gambling halls is not relevant in the light of the objective of the general taxes on profit. Therefore, the exemption from corporate tax/income tax (and the related solidarity surcharge55) and trade tax for the public casinos operators would be prima facie selective.

(106) In addition, the exemption of public casinos operators from the entertainment tax does not seem justified in the light of the objective of the entertainment tax, which is, according to the German authorities, to tax entertainment activities56 in order to raise revenues for the public authorities. In the light of this objective, the games offered by the public casinos operators and thus also the operators themselves seem to be in a comparable situation compared to the private gambling halls (and the games they offer) or other entertainment activities. Thus the exemption from entertainment tax for the public casinos operators would seem prima facie selective. The German authorities however also explained that the entertainment tax pursued another objective to tackle addiction (namely to dis-incentivise gambling seen as a risky occupation). In the light of the latter objective, it is unclear at this stage whether the games or only certain games (gambling machines, table games) offered by the public casinos operators and thus also the operators themselves are in a comparable situation compared to the private

54 This concerns their gambling related income (and except for VAT which normally applies). 55 Because the tax base of the solidarity surcharge is the amount of corporate/income tax, the public casinos operators would not pay any amount of solidarity surcharge also in the absence of an exemption from the solidarity surcharge. But an exemption is legally not the same as a tax amount of 0. 56 “Das Bereithalten von Spielgeräten ist Gegenstand der Vergnügungssteuer. Diese beruht auf dem allgemeinen Gedanken, daß demjenigen, der sich ein Vergnügen leistet, auch eine zusätzliche Abgabe für die Allgemeinheit zugemutet werden kann” (BVerfG, Teilurteil vom 10. Mai 1962 - 1 BvL 31/58 - BVerfGE 14, 76 §91). Also, the actual “Steuergut” is the “Vergnügungsaufwand des Spielers” (BVerwG in Urteil vom 13.04.2005 - BVerwG 10 C 5.04). The taxable event is sometimes defined very broadly by the applicable provision: ’das Ausspielen von Geld‘ (see Article 1(2) Vergnügungssteuergesetz in Bremen for example).

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gambling halls (and the games they offer) and whether the same rate as the one applicable to the gambling halls should be applied.

(107) Conversely, the public casinos operators are (apart from VAT) subject to special taxes (in particular the casino tax), which are deemed to be a replacement to the generally applicable taxes (and even lead to a higher tax burden). To the extent that these special taxes would impose a lower tax burden on public casinos operators, this would amount to a prima facie selective advantage.

3.1.4.2.2.3 Justification

(108) Provided an advantage can or could arise, it is up to Germany57 to explain how the prima facie selectivity could be justified, by reasons deriving directly from the intrinsic basic or guiding principles of the reference system or being the result of inherent mechanisms necessary for the functioning and effectiveness of the system.

(109) The German authorities have not provided any relevant arguments in that regard in the course of the preliminary investigation. In particular, the fact that public casinos operators would be subject to a different regulatory framework and would offer other types of games (different from the ones offered by the gambling halls) does a priori not seem relevant in the light of the objective of the taxes at stake and does not constitute a justification by the internal logic of the tax system; Subjecting public casinos to other tax rules and exempting them from normal taxes is not justified by the need to ensure the proper functioning of the tax system.

(110) Moreover, in the light of the objective of the special tax system, as described by the German authorities, namely to replace the normal taxes (Abgeltung) and to achieve a higher level of taxation than under the normal tax rules (Abschöpfung), an advantage (where the special taxes lead to a lower tax burden compared to the normal tax rules) would necessarily be selective, because that outcome would also run against the very logic of the special tax system itself. This special system indeed pursues at least the same objectives as the normal system with regard to the level of tax burden to be achieved. Its derogatory nature being justified by the objective to impose a higher tax burden, it would miss its purpose and negate its rationale, if it led to an advantage.

3.1.4.2.2.4 Examination of the coherence of the design of the system

(111) Because the special tax system applicable to public casinos has specific features (different tax bases, different tax rates) and applies to specific entities subject to a particular regulatory framework, the German authorities suggested that the special tax system applicable to public casinos could constitute its own reference system. It is true that, as explained above in recital (56), the tax exemptions are merely a way to prevent double taxation because the special taxes are meant to replace the normal taxes (Abgeltung). However also in that case, the specific tax regime applicable to public casinos would, in case it results in an advantage, be qualified as selective.

57Judgment of the Court of Justice of 8 September 2011, Paint Graphos and others, Joined Cases C-78/08 to C-80/08, ECLI:EU:C:2011:550, paragraph 65.

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(112) It must be emphasised that Article 107(1) of the TFEU does not distinguish between measures of State intervention in terms of their causes or aims, but defines them in relation to their effects, independently of the techniques used. This means that it is not sufficient to examine whether a given measure derogates from the rules of the reference system as defined by the Member State concerned. It is also necessary to evaluate whether the boundaries of the system of reference have been designed in a consistent manner or, conversely, in a clearly arbitrary or biased way, so as to favour certain undertakings which are in a comparable situation with regard to the underlying logic of the system in question. The Court of Justice already found that the reference system, as defined by the Member State concerned, although founded on criteria that were of a general nature, discriminated in practice between companies, which were in a comparable situation with regard to the objective of the system, resulting in a selective advantage being conferred on certain companies58.

(113) In the case at hand, the special tax schemes only apply to one category of operators clearly identified by the laws of the Länder, namely the public casinos operators.

(114) The objective of the special tax regimes applicable to public casinos, as described by the German authorities (see 2.2.3 above), is to replace the normal taxes (Abgeltung) and, in addition, to achieve a higher level of taxation than under the normal tax rules (Abschöpfung).

(115) However, as they are currently laid down in the laws of the Länder, the special schemes at stake do not include any automatic provision ensuring that at least the (first) objective would be achieved. In particular, these schemes do not include a mechanism imposing an additional burden, if the taxes paid are lower than what would result from the normal tax rules, they do not even require the authorities to determine the tax burden that would be due under the normal rules. Even if the very high casino tax rate (80%) that was chosen when the special system was first introduced may have seemed sufficient to rule out an advantage at that time, the rate of the casino tax has been reduced in all Länder since then (see below the part about existing aid) so that, in any event, this would not be sufficient to ensure that the special system achieves its aim.

(116) In conclusion, the special schemes only apply to one category of operators clearly identified by the laws of the Länder, namely the public casinos operators. The German authorities made clear that the aim of the specific rules was to depart from the normal rules only for the public casinos operators (the ultimate aim being originally to impose on them an additional tax burden i.e. a disadvantage). To the extent that these special tax schemes would involve for public casinos operators a tax burden lower than under normal tax rules, such advantage would be inconsistent with the very objective of the schemes and thus be selective by design.

(117) The German authorities have not provided any relevant arguments in the course of the preliminary investigation to explain why, in the event that the special tax regimes applicable to public casinos result in an advantage, this would be justified by the logic of the tax system. As mentioned in recitals (105) and (106) above, the

58 Judgment of the Court of Justice of 15 November 2011, Commission and Spain v Government of Gibraltar and United Kingdom, Joined Cases C-106/09 P and C-107/09 P, ECLI:EU:C:2011:732 , paragraphs 101 et seq.

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fact that public casinos operators would be subject to a different regulatory framework and would offer other types of games (different from the ones offered by the gambling halls) does not seem relevant in the light of the objective of the replaced taxes (except maybe for the entertainment tax, to a certain extent). Because the special tax rules aimed, according to the German authorities, to disadvantage the public casinos operators, a situation where these very rules would provide these operators with an advantage runs contrary to the internal logic of these rules.

3.1.4.2.3 Conclusion

(118) In view of the above, the Commission cannot exclude at the term of a preliminary investigation that the special tax rules applicable to public casinos (and grouped under measure 5) may involve/have involved a selective advantage to these operators. A closer examination of these regimes is necessary to ascertain whether they indeed involve a selective advantage compared to the normal tax rules.

3.1.4.3 The VAT offsetting mechanism (measure 1 - the first complaint)

(119) The complainants explain that, until 2006, public casinos operators were exempted from VAT. They argue that the VAT offsetting mechanisms introduced by the German Länder in 2006 (after the public casinos operators were made subject to VAT following a ruling of the Court of Justice), constitute an advantage to public casinos operators since other operators have to pay VAT while the ‘German public casinos operators are exonerated from any financial burden arising from their liability to pay VAT’.

(120) Germany introduced a ‘turnover tax’ (without a right to deduct) already in 1918 (Umsatzsteuer). The 1938 law in particular, exempted public casinos operators from taxes on turnover. As a replacement for the taxes from which they were exempted, the public casinos operators were subjected to a specific tax system (see section 2.2 above), in particular they paid the ‘casino tax’ (and sometimes other special taxes) as a replacement for turnover taxes (among others).

(121) In 1967, Germany replaced the existing ‘turnover tax’ by VAT (including a right to deduct input VAT). The turnover tax exemption for the public casinos operators was explicitly confirmed in the 1967 law59.

(122) In February 2005, the Court of Justice found that the VAT exemption for public casinos operators laid down in the 1967 law was contrary to the VAT Directive60. Germany adopted a law in April 2006 to abolish the former VAT exemption61, thus legally subjecting public casinos operators to VAT. However, at the same time or

59 See Article 4(9)(b), first sentence, of the Umsatzsteuergesetz (Mehrwertsteuer) of 29 May 1967 (the ‘VAT law'). Germany explained that the new exempting provision for public casinos operators introduced in 1967 in the VAT law was not necessary on substance (since public casinos operators were exempt from turnover taxes as a result of the 1938 ordinance), but was needed for legal reasons (the 1938 ordinance did not rank as law). 60 Judgment of the Court of 17 February 2005, Joined cases C-453/02 and C-462/02, Linneweber and Akritidis, ECLI:EU:C:2005:92. 61 Gesetz zur Eindämmung missbräuchlicher Steuergestaltungen vom 28.04.2006 (applicable as from 6.5.2006).

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shortly afterwards, the German Länder modified their laws on public casinos62 to lay down that the casino tax due by virtue of each of these laws was to be reduced by the amount of (net) VAT (to be) paid according to the normal VAT rules.

(123) It is thus factually and legally incorrect to claim that public casinos operators are not subject to VAT. The reduction of the casino tax by the amount of (net) VAT (the ‘VAT offsetting mechanism’) does not alter the obligation that the public casinos operators have to calculate VAT and to pay it. The VAT exemption laid down in 1967 has been abolished in 2006 and the laws subsequently adopted by the German Länder (laying down the offsetting mechanisms) do not change this. The laws of the Länder have introduced the offsetting mechanisms in order to reduce the casino tax, not the VAT due63. The Court of Justice confirmed that the VAT offsetting mechanism did not raise issues with regard to compliance with the VAT Directive64. This is also confirmed by public statistics on VAT: the amount of VAT paid by public casinos operators has dramatically increased between 2005 and 2007 (from 1 M€ to 122 M€)65.

(124) Following the case law mentioned in recital (81), it is necessary to consider the 2006 reform as a whole (subjection of public casinos operators to VAT and reduction of the casino tax through the offsetting mechanisms of the Länder). The advantage (reduction of the casino tax to take into account the payment of VAT) should be assessed together with the related disadvantage (being subject to VAT) with which it is inherently linked. It is thus not appropriate to assess the reduction of the casino tax (arising from the offsetting mechanism) alone.

(125) In that regard, the complainants themselves acknowledge that this reform was overall neutral. The 2006 reform indeed did not change the overall level of taxation of public casinos operators as the increase in VAT was exactly compensated by a decrease of the casino tax (according to the legal provisions of the offsetting mechanisms). The two inseparable measures were thus neutral. Therefore the introduction in 2006 of mechanisms to offset the additional tax burden that the subjection to VAT would induce on public casinos operators does not per se provide an advantage. At most, it could maintain an advantage already existing and related to the subjection of public casinos operators to special tax rules66. This issue is examined above in the context of measure 5.

62 See Annex 3. 63 The Länder are not competent as regards VAT. The laws that they adopted relate to the casino tax. 64 See Judgment of the Court of Justice in case C-440/12 Metropol Spielstatten, ECLI:EU:C:2013:687, paragraphs 30 and 52. The ECJ in particular ruled that ‘the fact that the amount of an unharmonised tax on betting and gaming […] may be adjusted according to the VAT owed in respect of that activity, is irrelevant in the light of the principle of fiscal neutrality’ and that VAT could still be passed on to the final consumers. 65 Public casinos operators became subject to VAT in May 2006 (middle of the year) so that the comparison between 2005 and 2006 or 2006 and 2007 would not reflect the full impact of the 2006 reform. 66 In that regard, the complainants also submit that the offsetting mechanism would be problematic because public casinos operators were (before the 2006 reform i.e. before the period under review) VAT exempted, so that they still do not ‘economically’ bear the burden of VAT after the 2006 reform, as a result of the offsetting mechanism (because the reform was financially neutral for them). It is however incorrect to claim that public casinos operators did not pay VAT before 2006. They were formally exempted from VAT by the German VAT law but the casino tax (and other specific taxes) they paid was meant to replace all normal taxes, thus also VAT. The complainants themselves stressed that fact, quoting the German Federal Court of Finances (BFH, 29.3.2001, III B 79/00 §29) in their submission of 4 April 2018, p. 11.

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(126) In any event, even if the VAT offsetting mechanisms were a pure reduction of the casino tax, such reductions of the casino tax could not regarded as providing in themselves a selective advantage. Because the casino tax replaces the normal taxes, a reduction of such a tax could constitute an advantage compared to the previous situation. But this does not necessarily constitute an advantage in comparison with the normal tax rules, which are the relevant benchmark. The normal tax rules can indeed also evolve over time (in parallel with the special rules), which means that a lower tax burden (hypothetically) introduced by the offsetting mechanisms may not amount to a more favourable tax treatment compared to the normal rules. Moreover, even if the normal rules did not change in parallel, the special rules may have provided a disadvantage to the public casinos operators before the reduction of the casino tax, so that this (hypothetical) reduction may merely have led to a lower disadvantage for the public casinos operators67. A reduction of the (overall) tax burden of the public casinos operators over time thus does not per se mean that the public casinos operators are getting a (selective) advantage. This issue is also examined above in the context of measure 5.

(127) In conclusion, measure 1 (which encompasses the 16 VAT offsetting mechanisms introduced by the 16 Länder) cannot be assessed as a standalone measure. It needs to be assessed together with the (additional) VAT payment imposed on the public casinos operators, which the reduction of the casino tax was designed to exactly offset. Assessed globally, these measures in themselves cannot provide an advantage because they are neutral by design. The issue of whether the special tax rules generally applicable to public casinos operators involve overall a selective advantage to them compared to the normal rules is assessed in the context of measure 5 (which encompasses the tax schemes generally applicable to public casinos operators, one in each Land).

3.1.4.4 Reductions of special taxes for certain public casinos operators (measures 2.a and 2.b and measures 4.b and 4.c)

(128) The provisions of the law of the Länder that automatically and generally (for all public casinos operators) reduce the casino tax rate or other taxes for newly opened casinos or in other circumstances are examined below respectively as measures 2.a. and 4.b.

(129) The provisions of the law of the Länder merely giving the competence to the authorities of the Länder to reduce the casino tax rate for newly opened casinos or in other circumstances do not amount in themselves to any advantage. They call for implementing measures and as such do not involve aid. On the other hand, the implementation of this possibility to reduce the special taxes by the authorities of the Länder could provide concrete advantages to certain public casinos operators

The public casinos operators could thus be regarded as already substantially paying VAT (via the casino tax as Abgeltungssteuer) even before the 2006 reform. From that perspective, the additional VAT stemming from the 2006 reform was an additional burden (in addition to the VAT already paid via the casino tax) and had to be neutralized (by the VAT offsetting mechanism, which precisely reduces the casino tax that was meant to replace VAT in the first place) in order to prevent double taxation. This reasoning is explicitly mentioned in the explanatory memoranda of the laws of the Länder introducing that mechanism (see for example in Saxony-Anhalt, Drucksache 5/1785, 11.2.2009). 67 The special tax system of the public casinos operators aimed, at least originally, at taxing them more than under the normal rules.

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and is examined below as measure 2.b (for the reductions relating to new openings) and 4.c (for reductions related to other circumstances).

3.1.4.4.1 Automatic reductions directly laid down by the laws of the Länder (measures 2.a and 4.b)

(130) The laws on public casinos of 4 Länder lay down an automatic reduction of the casino tax rate for newly opened public casinos (measure 2.a)68. Moreover, the laws on public casinos of 2 Länder lay down an automatic reduction of the special taxes in certain circumstances (measure 4.b)69. Such reductions would be regarded, if aid, as aid schemes within the meaning of Article 1(d) of the Procedural Regulation (because the beneficiaries are defined within the act in a general and abstract manner).

(131) Such reductions of the casino tax do not necessarily, for the reasons mentioned above in recital (126) (mutatis mutandis), constitute an advantage compared to the normal tax rules.

(132) Such automatic measures constitute an integral part of the usual rules (baseline rules) to be applied to any public casinos operators in the Länder at stake. They are examined in the context of measure 5.

3.1.4.4.2 Decisions by the public authorities to make use of optional provisions of the laws of the Länder allowing the reduction of the casino tax (measures 2.b and 4.c)

(133) In 3 Länder70, the laws on public casinos merely allow the authorities of the Länder (usually the minister of finances) to reduce the casinos tax rate applicable to a public casinos operator during the first years of operation of a newly opened public casino (the implementation of these provisions is examined under measure 2.b).

(134) The complainants also mention the provisions of 6 laws of the Länder on public casinos71 giving to the authorities of the Länder (usually the minister of finance) the competence to reduce the casino tax rate (or the rates of additional taxes on the GGI) for other reasons than openings of new public casinos (the implementation of these provisions is examined under measure 4.c). Similar reductions could be granted, in other Länder, on the basis of other provisions.

68 Mecklenburg-Vorpommern, Lower Saxony, Saarland and Saxony. See Annex 2(A). 69 The complainants mention provisions of two laws of the Länder: Article 3(1), sentence 2, of the law of Hamburg, Article 10(2) of the law of Hesse). These provisions do not allow the authorities of the Länder to reduce the casino tax. They merely lay down the features of further specific taxes imposed or possibly imposed on the public casinos operators. In Hamburg, the provision at stake lays down that the so-called Sonderabgabe (‚special tax’ on GGI, in addition to the casino tax) can only be levied to the extent that a reasonable profit [angemessener Gewinn] remains for the operator. That provision also lays down that the weitere Abgabe (‚further tax’) is also calculated by reference to the same requirement of a reasonable profit for the operator. In Hesse, according to the provision mentioned by the complainants, so-called weitere Leistungen (‘further contributions’, in addition to the casino tax and the zusätliche Leistungen/’additional contributions’) can be imposed on the public casinos operators by the authorities of the Länder, whereby the law lays down that a ‘sufficient part of the GGI’ should be left to the operator. See Annex 2(B). 70 Baden-Württemberg, Hesse, NRW. See Annex 2(A). 71 Baden-Württemberg, Bavaria, Brandenburg, Bremen, Rhineland-Palatinate and Saarland. See Annex 2 (B).

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(135) These legal provisions do not define the conditions on the basis of which the reduction of the casino tax would be automatically awarded, without any implementing acts being required (the granting authority can grant it or not, it is also in most cases free to determine the duration and the range of the reduction). Thus, these legal provisions as such cannot be regarded as ‘schemes’ for the purpose of Article 1(d) of the Procedural Regulation72, because they require 'further implementing measures'.

(136) But the possible decisions by the authorities of the Länder to reduce the casino tax of one operator, on the basis of the laws of the Länder, would be regarded, if aid, either as individual aid measures within the meaning of Article 1(e) of the Procedural Regulation, if the amount is definite or, if the amount is indefinite, as aid schemes within the meaning of Article 1(d) of the Procedural Regulation.

3.1.4.4.2.1 Advantage

(137) Whether these specific measures provided the public casinos operators concerned with a selective advantage cannot, for the reasons mentioned in recital (126) above, be assessed standalone.

(138) They need to be examined using the same method as for measure 5 (global comparison), but that comparison should take place in a second step. If the mere application of the automatic features of the special laws leads to an advantage, a possible additional reduction of the public casinos operators' tax burden would a fortiori lead to an additional advantage. On the contrary, if the mere application of the automatic features of the special laws does not lead to an advantage, a possible additional reduction of the public casinos operators' tax burden could still lead to an advantage (at least in part), compared to the burden arising from the normal rules.

3.1.4.4.2.2 Selectivity

(139) Ad hoc decisions of the public authorities to reduce the taxes paid by certain operators, to the extent they would result in a lower tax burden compared to the normal tax rules, would amount to a selective advantage. The selectivity assessment of such individual measures modifying the tax burden of particular public casinos operators under their special rules would closely follow the selectivity assessment of these special rules themselves (see section 3.1.4.2.2 above) and would thus at this stage seem to be selective.

3.1.4.4.3 Conclusion

(140) The generally applicable automatic reductions of the special taxes applicable to public casinos operators in case of opening of new casinos (measure 2.a) or in other circumstances (measure 4.b) are an integral part of the specific tax regimes applicable to public casinos operators and are examined together with the other features of these tax regimes under measure 5.

(141) Conversely, the ad hoc decisions of the public authorities to reduce the special taxes for specific public casinos operators in the first years of operation of newly

72 Council Regulation (EU) 2015/1589 of 13 July 2015 laying down detailed rules for the application of Article 108 of the Treaty on the Functioning of the European Union, OJ L 248, 24.9.2015, p. 9–29.

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opened public casinos (measure 2.b) or in other circumstances (measure 4.c) constitute separate measures that could involve individual aids, where the amount of the tax reduction was definite or aid schemes, in case it was indefinite. These specific measures also cannot be assessed standalone. They need to be examined using the same method as for measure 5 (global comparison with the tax burden under the normal rules). Whether these measures involve an advantage, an additional advantage or no advantage depends on the assessment of the special tax regime applicable to public casinos (measure 5) and can only be determined after that assessment (see recital (138)).

3.1.4.5 The alleged guarantee to make a reasonable commercial profit as such (measure 4.a - fourth complaint)

(142) The complainants claim that the public casinos operators throughout Germany would benefit from a ‘guarantee’, which would prevent them from making losses or going bankrupt and would ensure that they make a minimum profit.

(143) This interpretation is not supported by the judgment of the national court, which the complainants submit as the legal basis of that guarantee73. This judgment does not imply that a certain level of profit would be guaranteed, it merely mentions the existence of certain limits to the (high) level of taxation of the public casinos operators (in order to prevent a ‘choking effect’).

(144) The interpretation of the complainants is also contradicted by the facts, since the public casinos operators sometimes make losses – i.e. have a negative profitability – (see the public casinos operator in NRW74) or go bankrupt (for example in Mecklenburg-Vorpommern, Thuringia or Saxony-Anhalt).

(145) The 1933 law (to which the judgment mentioned by the complainants refer) has no standalone or automatic consequences for the public casinos operators. It does not involve a guaranteed remuneration of capital or profitability rate. In a context where special taxes on public casinos operators were deemed necessary to increase their tax burden compared to the normal rules, the alleged guarantee merely allows the public authorities to put limits to the (expected higher) tax burden of the public casinos operators.

(146) In conclusion, there is no general guarantee for the public casinos operators to have a minimum profit or not to go bankrupt. To the extent that the complainant would in fact (by its allegation concerning measure 4.a) try to put in question a reduction of the special taxes applicable to public casinos operators, such provisions are examined in the context of measure 5 (see 3.1.4.4.1 above).

73 The judgment by the German Federal Court of Finances (BFH) of 8.3.1995 (II R 10/93, BStBl. 1995 II S. 432) mainly clarified that the 'casino tax' (Spielbankabgabe) was a tax. For that purpose, the Court had to determine whether the casino tax was a retribution (paid by the concession holder) for the attribution (by the Land) of the concession to operate a public casino. In that context, the Court recalled that the objective of the casino tax was to 'cream off' the profits made by the public casino until the limit of economic/financial sustainability ('Gewinne sollen zugunsten des Staatshaushalts möglichst weitgehend, d. h. bis zur Wirtschaftlichkeitsgrenze abgeschöpft werden') so that it should be regarded as a tax and not as a price paid for holding the concession. The Court did not draw any consequence as regards a possible reduction of the tax burden of the public casinos or the absolute/automatic possibility to get a minimum return on investment or getting compensation of losses. 74 See for example the annual accounts (Jahresabschlüsse) for 2013 and 2016 (available on www.bundesanzeiger.de).

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3.1.4.6 The reduction of the tax base of the corporate and trade tax paid by the public casinos operators in NRW in relation to their non-gambling related income (measure 3. - third complaint)

(147) As explained in recital (35) and section 3.1.4.1 above, public casinos operators are subject to the normal tax rules (corporate tax/income tax and trade tax) for the part of their income, if any, which is not related to gambling, for example if they operate a restaurant. Due to their legal form (Kommanditgeselleschaft), the public casinos operators in NRW are transparent for corporate/income tax purposes. They are subject to trade tax, but, for income/corporate tax purposes, their profits are taxed at the level of the shareholders (Gesellschafter).

(148) As regards their non-gambling related income, public casinos operators in NRW are, in addition to the normal tax rules, also subject to a specific tax on profit (Gewinnabschöpfung or ‘profit skimming’). Following paragraph 14 of the law on public casinos of NRW, public casinos operators are legally bound to transfer to the Land at least 75% of their annual profit (‘Jahresüberschuss’)75.

(149) The German authorities clarified that only a part of the ‘profit skimming’ (the one stemming from the non-gambling activities) is taken into account in order to reduce the taxable base for the purposes of determining the (normal) taxes on non- gambling activities i.e. corporate/income tax and trade tax76.

(150) The complainants consider that deductibility (from the taxable base of the normal taxes) of the sums paid as ‘profit skimming’ in 2014 by the public casinos operators constitutes State aid.

(151) The complainants confirmed that their third complaint is directed only against the NRW law on the ‘profit skimming’, which would be the legal basis of the alleged aid. At the same time, they noted that ‘there is in NRW no specific provision regarding the determination of the tax base’ of the taxes at stake (corporate/income tax and trade tax) and they also did not identify any other provision (for example in national law) that could be the source of the special deductibility rule. It thus seems that the complaint targets an interpretation of the tax law by the public authorities whereby the public casinos operator in NRW (or its shareholders at the level of which corporate tax is applied) would, contrary to the normal rules of taxation, deduct the amount of ‘profit skimming’ from its taxable base for the purposes of trade tax and corporate tax.

(152) The sums paid by the public casinos operators as ‘profit skimming’ to the public authorities (Land) and used by the Land for charitable purposes a priori constitute

75 § 14 Gewinnabschöpfung (1) Die ausgewiesenen Jahresüberschüsse der Spielbankunternehmen sind zu 75 Prozent an das Land abzuführen. Sofern das restliche Viertel dieser Überschüsse 7 Prozent der Summe aus den Anteilen des Gesellschaftskapitals, den Rücklagen und den Risikofonds übersteigt, sind diese in voller Höhe an des Land abzuführen. (2) Die Spielbankunternehmen haben ein Viertel der nicht an das Land abzuführenden Jahresüberschüsse einer Stabilisierungsrücklage zuzuführen, die nicht ausgeschüttet und nur mit Zustimmung des für Inneres zuständigen Ministeriums und des Finanzministeriums aufgelöst werden darf. 76 While the ‘profit skimming’ is calculated on all sources of profit of the public casinos, only the part of the payment which is related to non-gambling revenues can be deducted from the taxable base of the taxes levied on non-gambling revenues.

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deductible expenses for the public casinos operators, according to the general rules of taxation under corporate/income tax and trade tax77 because they are 'expenses induced by the business operations' (see recital (78) above). Allowing their deduction, in line with the basic principle of income tax law that only the net profit should be taxed, does therefore not seem to involve a selective advantage. Germany merely applies the normal rules of deductibility: the complainants confirmed that there is no specific provision allowing the deduction of the 'profit skimming', which would derogate from the normal tax rules.

(153) However, the complainants claim that the ‘profit skimming’ should not be deducted from the tax base of corporate tax and trade tax, because taxes on profit, personal taxes and the trade tax are not deductible expenses in German tax law78.

(154) It should be noted that this reasoning implicitly means that, for the complainants, the ‘profit skimming’ is a tax79 that is comparable to taxes on profit, personal taxes and the trade tax and which by analogy should not be deductible for the purposes of the corporate/income tax and trade tax. Because of its economic effects, its compulsory nature and the absence of counterpart, the ‘profit skimming’ can indeed be regarded as a special tax on the public casinos operator’s income.80.

(155) In order to explain that the ‘profit skimming’ should not be deducted from the tax base of income/corporate tax and trade tax, the complainants argue that Article 4 (5b) of the income tax law81 would prevent taxes on profit to be deductible from the taxable basis for income tax purposes. But that provision merely qualifies the trade tax (and not any other tax on profit) as 'not a business expense' so that it cannot be deductible from the taxable basis for income tax purposes. Moreover, there is no

77 The ‘profit skimming’ could be compared to special payments imposed on undertakings for example for anticompetitive behaviours – to the extent that they are calculated as a fraction of the profit generated by these anticompetitive behaviours –, which the German Constitutional court ruled to be deductible expenses (see BVerfG, 23.01.1990 - 1 BvL 4/87, 1 BvL 5/87, 1 BvL 6/87, 1 BvL 7/87). ‘[Aus dem allgemeinen Gleichheitssatz] folgt für das Gebiet des Steuerrechts vor allem, daß die Besteuerung an der wirtschaftlichen Leistungsfähigkeit des Steuerpflichtigen ausgerichtet werden muß (vgl. BVerfGE 61, 319 (343); 66, 214 (222 f.); 67, 290 (297); 68, 143 (152 f.); 72, 200 (260); 74, 182 (200)). Das geltende Einkommensteuerrecht zieht daraus die Konsequenz, daß bei den hier in Betracht kommenden Einkünften nur der Gewinn, das heißt der Zuwachs des Betriebsvermögens im Laufe des Wirtschaftsjahres, der Besteuerung unterliegt und daß grundsätzlich alle betrieblich veranlaßten Aufwendungen als Betriebsausgaben absetzbar sind (vgl. insoweit auch BVerfGE 27, 58 (64 f.)); dieses sogenannte Prinzip der Nettobesteuerung ist in § 4 Abs. 1 und 4 EStG ausdrücklich niedergelegt.’ ‘Mit dem verfassungsrechtlichen Prinzip der Besteuerung nach der wirtschaftlichen Leistungsfähigkeit ist […] eine Regelung [nicht vereinbar], welche die vollständige Abschöpfung nach ordnungswidrigkeitsrechtlichen Grundsätzen mit einer zusätzlichen steuerrechtlichen Belastung verbindet. Ist gemäß dem geltenden Recht der durch eine Ordnungswidrigkeit erlangte Gewinn nach einkommensteuerlichen Regeln zu versteuern, so darf deshalb in den auf seine Abschöpfung gerichteten Teil des Bußgeldes nur der um den absehbaren Steueranteil verminderte Gewinnbetrag einbezogen werden. Umgekehrt darf die Absetzung der Geldbuße als Betriebsausgabe in Höhe des Abschöpfungsbetrages dann nicht ausgeschlossen werden, wenn deren Bemessung vom Bruttobetrag des erzielten Gewinns ausgeht.’ 78 Submission of 9.2.2017 p. 33-37 and submission of 29.11.2018 p.20. 79 In order to not take into account the sums paid as ‘profit skimming’ in the tax burden of the public casinos, the complainants however also argued that the ‘profit skimming’ was not a tax. In that case, the non-deductibility argument based on the prohibition to deduct taxes from the income/corporate tax base does not hold. 80 The qualification of such mandatory payments in national law as ‘tax’ or not is not determinant. See Judgment of the Court of Justice of 25 September 2003, Océ Van der Grinten NV, Case C-58/01, paragraph 46 and the case law mentioned. 81 'Die Gewerbesteuer und die darauf entfallenden Nebenleistungen sind keine Betriebsausgaben.'

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provision preventing the deductibility of a specific tax on profit such as the 'profit skimming'. In any event, because of the legal form of its shareholders, income tax does not seem to apply to the income generated by the public casinos operator in NRW which is rather subject to corporate tax.

(156) The complainants also mention Article 10(2) of the corporate tax law, according to which income taxes and other personal taxes are not deductible82. This provision targets general taxes on profit (such as the trade tax, see Article 4 (5b) of the income tax law by analogy) and nothing indicates that this restriction would apply to a special additional tax like the 'profit skimming', that no other taxpayer (than the public casinos operators) is paying, also because the tax base of the 'profit skimming' (Jahresüberschuss) is not exactly the Einkommen. In any event, the need to explicitly lay down such a provision (making taxes on profit non-deductible from corporate tax) shows that such provision derogates from the normal rules according to which all business related expenses are deductible in order to determine the taxable income for income and corporate tax purposes (so called 'Nettoprinzip'83). A provision forbidding deductibility of 'Steuern vom Einkommen und sonstige Personensteuern' from the tax base of the income tax constitutes a restriction to the normal and general rule of deductibility. Exempting the 'profit skimming' from that derogating rule merely reflects the normal rule (deductibility is allowed) and is not selective84, especially because the 'profit skimming' is a special tax on profit, not comparable to the non-deductible taxes targeted by Article 10(2)85.

(157) This reasoning (presented above in relation to the reduction of the tax base of income/corporate taxes) also applies for the alleged reduction of the trade tax base (the trade tax law refers to the deductibility rules applicable to respectively income/corporate tax). Exempting the 'profit skimming' from the tax base of the trade tax reflects the general principle of deductibility of business related expenses and is not selective.

(158) Moreover, the complainants put forward the fact that dividends would not be deductible from the trade tax base and income tax base. However, this is not relevant because the sums paid as 'profit skimming', although their amount depends on the profit made, are neither dividends nor comparable to dividends86 and the public casino operators in NRW cannot distribute dividends due to their legal form.

(159) In addition, as regards more specifically the criterion of the advantage, other economic operators (in particular the gambling halls) are not subject to the ‘profit skimming’, so that deducting the amount of that special tax from the tax base of

82 'Nichtabziehbar sind auch […] die Steuern vom Einkommen und sonstige Personensteuern […].' 83 See for example BFH 21.09.2009 - GrS 1/06 BStBl 2010 II S. 672, §94. This is also evidenced by the fact that the trade tax was deductible from corporate tax until 2007. 84 See Judgment of the Court of Justice in case C-209/16 P, Sanierungsklausel, ECLI:EU:C:2018:507, paragraphs 98 and 99. 85 Allowing such deduction thus does not contradict the rule prohibiting to deduct general taxes on profit. 86 They are (i) paid to the Land which is not the shareholder of the public casinos (it is the owner of the Landesbank which owns the public casinos), (ii) unilaterally set by the public authorities in a law, (iii) automatic/mandatory and (iv) the relevant revenues have to be used for charitable purposes. Also, dividends are not necessarily connected with the amount of profits made in a particular year (past profits put in reserve can be distributed at a later stage) while the 'profit skimming' (Gewinnabschöpfung) of a particular year is directly connected to the profits made in that same year.

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other taxes87 cannot (overall) provide the public casinos operator with an advantage compared to the normal tax rules. Given the fact that the ‘profit skimming’ amounted to 82.02 M€ (all related to the non-gambling activities) in 2014, and because the trade tax rate (applicable in the relevant city) and corporate tax rate (including the solidarity surcharge) in that year were respectively 17,7% (at most) and 15,6%, the amount of the normal taxes at stake was reduced by 27.3 M€ (at most) while it was increased by a much larger amount as a consequence of the ‘profit skimming’, namely 82.02 M€. The advantage (if any) induced by the possibility for the public casinos to deduct from their corporate and trade tax basis this mandatory payment imposed by the Länder is outweighed in any event by the burden related to this payment, which is specific to the public casinos operators and always much higher.

(160) In conclusion, measure 3 does not grant a selective advantage to the public casinos operators in NRW.

3.1.5 Conclusion on the existence of aid

(161) Measure 1, which encompasses the mechanisms introduced by all Länder to automatically offset the VAT from the amount of the casino tax due by the public casinos operators cannot be assessed on a standalone basis. These mechanisms form part of the specific tax regimes applicable to public casinos operators and are examined together with the other features of the tax regimes applicable to them under measure 5.

(162) Measure 3 which concerns the interpretation by the tax authorities of the tax law for the public casinos operator in NRW, namely the deductibility from the corporate and trade tax basis of the public casinos operators (as far as their non- gambling revenues are concerned) of the special mandatory payment they make to the Land as ‘profit skimming’, involves no selective advantage and therefore no aid.

(163) As regards the unlimited guarantee allegedly benefitting to public casinos operators in general (measure 4.a), the Commission established that no such general guarantee exists.

(164) As regards measure 5, the Commission is unable, following the assessment of the information provided during the initial examination, to reach the firm view that the schemes of the Länder grouped under this measure (and consisting in the special tax regimes generally applicable to public casinos operators in each Land) does not involve a selective advantage to public casinos operators. More information and deeper examination is needed to conclude whether measure 5 involves and/or involved a selective advantage or not.

(165) Measures 2.a and 4.b, to the extent they concern automatic reductions of the special taxes generally applicable to public casinos operators and laid down by law (in case

87 To the extent that these normal taxes are proportional taxes (corporate tax and trade tax) or even progressive taxes where the higher rate only applies to the fraction of the profit/income exceeding the threshold laid down for the higher rate (personal income tax), the advantage of the public casinos operators resulting from the reduction of the tax base (by the amount of the 'profit skimming') is lower than the disadvantage resulting from the obligation of the public casinos operators to pay this special tax ('profit skimming').

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of opening of new casinos or other circumstances), form part of the specific tax regimes applicable to public casinos operators and are examined together with the other features of the tax regimes applicable to them under measure 5.

(166) Conversely, the reductions of special taxes applicable to public casinos that were decided by the public authorities on an ad hoc basis and for specific public casinos operators either in case of new openings (measure 2.b) or in other circumstances (measure 4.c) can involve individual aids (if their amount was defined) or can amount to aid schemes (if their amount was undefined). To the extent that these measures are not generally applicable, they do not form part of the general rules applicable to public casinos operators and must be assessed separately from measure 5 and after that assessment (see above).

(167) In view of the limitation period of 10 years, it seems appropriate to carry out this deeper examination as from March 2007.

3.2 Compatibility

(168) If some of the measures examined constituted aid, they would qualify as operating aid, as they are not linked to any specific investment or project. Operating aid that merely diminishes the normal costs of an undertaking distorts competition and it is a priori doubtful that such aid could be regarded as compatible with the internal market88.

(169) The German authorities have also not put forward any arguments to justify why the different measures concerning the public casinos examined in the context of the present decision, if aid, would be compatible.

(170) The Commission has therefore doubts about the compatibility of the measure with the internal market.

3.3 New aid or existing aid

(171) According to Article 1(b)(i) of the Procedural Regulation, an aid measure is 'existing' if it 'existed prior to the entry into force of the TFEU in the respective Member States'; this concerns 'aid schemes and individual aid which were put into effect before, and are still applicable after, the entry into force of the TFEU in the respective Member States'. The Treaty entered into force in Germany on 1 January 1958 (for the Western German Länder) and 3 October 1990 (for the East German Länder).

(172) According to Article 1(c) of the Procedural Regulation the concept of ‘new aid’ includes ‘alterations to existing aid’. Such alterations must be material, not simply formal to involve new aid. It is only where the alteration affects the actual substance of the original scheme that the change affects the existing aid nature of the scheme. Moreover, where the alteration is ‘clearly severable’ from the initial

88 See judgment of the Court in case T 747/17, Union des ports de France/Commission, ECLI:EU:T:2019:271, paragraphs 134 and 135.

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scheme89, only the severable element of the scheme that was modified qualifies as new aid.

(173) In the light of the conclusion reached above regarding the existence of State aid, it is not necessary to examine whether measures 1, 3 and 4.a are ‘existing’ measures.

(174) If aid, the measures reducing the casino tax (or other special taxes) of certain public casinos operators, introduced by ad hoc decisions of the public authorities (see Annex 1, measures 2.b and 4.c) would, constitute new aid, because they took place after entry into force of the Treaty and within the limitation period for the recovery of aid90.

(175) It is thus necessary to examine whether measure 5 (including measures 1, 2.a and 4.b) is existing or new. The automatic and general features of the special tax schemes of the Länder applicable abstractly to any public casinos operator are complex measures made of a series of tax exemptions (exemption from national taxes and exemption from Länder taxes and municipal taxes) and a series of special taxes (casino tax and other special taxes).

3.3.1 Existing features of the special tax schemes applicable to public casinos operators

3.3.1.1 Exemptions from national, Länder and municipal taxes in the East German Länder

(176) In the 5 East German Länder (and Berlin-East), public casinos operators were exempted from national taxes – income tax, corporate tax91 –trade tax and entertainment tax on the basis of two general laws adopted before 3 October 199092. Although the public casinos operators are today exempted on the basis of new specific laws of the Länder (see Annex 3), these laws simply took over the tax exemption which would have otherwise remained in application. This change was thus merely formal and does not give rise to new aid.

89 See judgment of the Court in Joined Cases T-195/01 and T-207/01, Gibraltar v Commission, ECLI:EU:T:2002:111, paragraph 111. 90 Following Article 17(2) and (3) of the Procedural Regulation “The limitation period shall begin on the day on which the unlawful aid is awarded to the beneficiary either as individual aid or as aid under an aid scheme. […].” “Any aid with regard to which the limitation period has expired shall be deemed to be existing aid.”. Thus, if aid, only the aid awarded as individual aid or as aid under an aid scheme after 8 March 2007 can be regarded as new aid. See Annex 1 and footnote 113 below. 91 They were also exempted from VAT, wealth tax and the capital duty and from the lottery tax (the latter being a tax of the Länder), these exemptions being not relevant anymore (see above recital (53)). 92 Article 1 of Anordnung über die Erhebung einer Spielcasinosteuer of 27.03.1990 (GBl. I Nr. 22, S. 217), Article 6 of Verordnung über die Zulassung öffentlicher Spielcasinos of 4.7.1990 (GBl. I Nr. 50, S. 952).

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3.3.1.2 Exemption from corporate/income tax (national taxes) in the West German Länder

(177) Article 6(1) of the 1938 law, which exists since before entry into force of the Treaty, generally exempted and still93 exempts public casinos operators’ profit from corporate tax and/or personal income tax.

(178) When a public casino opened before the entry into force of the Treaty (as in Baden- Württemberg, Bavaria, Hesse, Rhineland-Palatinate and Schleswig-Holstein), the German authorities adopted (before entry into force of the Treaty) further provisions completing the 1938 law (introducing of the casino tax and of exemptions from municipal taxes and from taxes of the Länder). In these Länder, the exemption from national taxes laid down in the 1938 law thus effectively applied before entry into force of the Treaty and, given the general wording of the law (applicable abstractly to any operator of public casinos), the exemption from national taxes can be regarded as an existing measure (also for ‘new’ operators and ‘new’ casinos).

(179) In the Länder where no public casino existed before the entry into force of the Treaty, the exemption from national taxes laid down in the 1938 law could be regarded as merely hypothetical and not functional. The 1938 law alone was indeed never applicable to a public casino operator: no public casino operator ever benefited from a blanket corporate tax or income tax exemption (i.e. an exemption without the casino tax as replacing tax); this would have negated the very objective of that law (which was not to exempt public casinos operators from taxes but subject them to a special tax accounting for the normal taxes and even leading to a higher tax burden, see above 2.2.3). However, in the light of the general wording of the 1938 law (applicable abstractly to any operator of public casinos) and given the fact that the exemption from national taxes was also an existing measure in the other (East and West German) Länder, the exemption from national taxes can be regarded, as a whole, as an existing feature of the specific tax schemes applicable to public casinos operators.

3.3.2 New features of the special tax schemes applicable to public casinos operators

(180) As explained below, the special taxes applicable to public casinos operators (deemed to replace the normal taxes) were reduced (sometimes more than halved) since entry into force of the Treaty while some of the normal taxes rather increased94 (or at least fluctuated) were abolished (wealth tax, capital duty) or created (solidarity surcharge. In §5 of the 1954 Verwaltungsabkommen, the federal authorities and the authorities of the Länder considered that a casino tax rate of 80% would be sufficient to account for the normal taxes95. That rate was applicable

93 In Hesse, the 1938 law was fully replaced by the law of the Land (law of 21.12.1988), without this constituting a material alteration as regards the exemptions laid down in Article 6(1) (they kept the same temporal, personal and material scope). 94 Especially the entertainment tax, as claimed by the complainants and implicitly acknowledged by the German authorities. 95 It was at that time easier to reach the conclusion that the legal features of the schemes were very unlikely to lead in practice to an advantage. This is because the tax rate chosen for the casino tax was very high (see, on that point, judgment of the BFH of 8.3.1995 (II R 10/93) BStBl. 1995 II S. 432 qualifying the 80% rate as ‘exorbitantly high’ and thus appropriate to reach the objective of the special taxes), thus allowing

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to the public casinos operators existing before entry into force of the Treaty (the rate chosen in July 1990 in the East German Länder was even 85%) so that it was very unlikely at this time that these operators would enjoy a tax advantage. An advantage for the public casinos operators arising after entry into force of the Treaty would thus in all likelihood result from changes/alterations/modifications occurring after entry into force of the Treaty either to the normal tax rules96 or to the special tax rules. Such advantage, if aid, would thus need to be qualified of ‘new’ aid.

(181) Because the provisions at stake are intrinsically linked and because the special tax regimes of the public casinos operators are not made up of mere tax exemptions (but rather of special taxes replacing the normal taxes), the Commission is unable to identify an existing advantage that would have persisted until now and which would be clearly severable from the possible advantages that would arise from the alterations to the existing schemes.

(182) In any event, while certain features of these special tax regimes pre-existed entry into force of the Treaty, other important features of the regimes were introduced or at least materially modified afterwards, as explained below.

(183) In sum, despite the fact that certain features of the special tax schemes applicable to public casinos could be considered as pre-existing entry into force of the Treaty, the special tax regimes applicable to public casinos in the 16 Länder give rise to new aid (if aid).

3.3.2.1 Reduction of the special taxes

3.3.2.1.1 The amount of the casino tax by the VAT offsetting mechanisms for any operator of public casinos

(184) The amount of casino tax to be paid was reduced by the VAT offsetting mechanisms, in all Länder, after entry into force of the Treaty, as illustrated in the following table. Nevertheless, since this offsetting mechanism is neutral by design (see recital (127)) and directly results from the initial design of the casino tax, its introduction as such did not materially modify the ‘existing’ schemes’.

Land Reduction of the casino tax amount Baden-Württemberg Law of 20.11.2012 (applicable as from 2010) Bavaria Law of 20.12.2007 Berlin Law of 3.3.2010 Brandenburg Law of 28.6.2012 Bremen Law of 18.12.2007 Hamburg Law of 30.11.2010 Hesse Law of 15.11.2007 Mecklenburg-Vorpommern Law of 17.12.2009

more easily to conclude that it leads to a higher tax burden than the normal rules, even using conservative assumptions. Moreover the casino tax was at that time not progressive and there was no need to take into account possible reductions in specific circumstances, which also simplified the comparison. 96 Because of the inseparable link between the special taxes and the exemptions from normal taxes and because the special taxes paid by public casinos operators are deemed to be a replacement for the normal taxes (see 2.2.3), it cannot be excluded that the evolution of the normal taxes since entry into force of the Treaty are relevant in order to assess whether the schemes at stake were altered since the entry into force of the Treaty.

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Lower Saxony Law of 17.12.2007 NRW Law of 30.10.2007 Rhineland-Palatinate Law of 8.2.2009 Saarland Law of 21.11.2007 Saxony Law of 26.6.2009 (applicable as from 1.1.2007) Saxony-Anhalt Law of 16.12.2009 Schleswig-Holstein Law of 12.4.2007 Thuringia Law of 29.3.2011

3.3.2.1.2 General reduction of the rates of the special taxes for any operator of public casinos

(185) The casino tax and other additional taxes on the GGI of public casinos constitute one of the main features of the tax schemes applicable to public casinos operators. These taxes are meant to replace the normal taxes. In all Länder, the rates of these taxes were however substantially modified (reduced)97, as illustrated in the following table.

Land Reduction of the casino tax rate (including other taxes on GGI) Baden- Law of 20.11.2012 (applicable as from 2010) (45-50% + tax on profit, instead Württemberg of 80%) Bavaria Law of 29.4.1999 (50-70% instead of 80%) Law of 24.4.2001 (50-70% - higher thresholds) Law of 9.5.2006 (50-60%) Law of 14.4.2009 (35-40%) Law of 14.4.2011 (30-35%) Law of 24.5.2019 (25-30%) Berlin Law of 3.3.2010 (applicable as form 1.1.2010) (40-50% + tax on profit, instead of 80%) Brandenburg Law of 22.4.2003 (60-80%, instead of 85%) Law of 18.12.2007 (55-75%) Law of 28.6.2012 (25-45%) Bremen Law of 18.12.2012 (applicable as from 1.1.2013) (40%, instead of 80%) Hamburg Law of 16.11.1999 (70-90% instead of 80%) Law of 23.5.2014 (55-80%, introduction of a tax on profit) Hesse Law of 13.12.2017 (75% + weitere Leistungen instead of 80% + weitere Leistungen) Mecklenburg- Law of 7.5.1996 (70-85% instead of 85%) Vorpommern Law of 5.7.2004 (50-80% + tax on profit) Law of 17.12.2009 (applicable as from 1.1.2007) (25-80% + tax on profit) Lower Saxony Law of 25.6.2003 (applicable as from 1.9.2002) (80% instead of 70-88%). Law of 16.12.2004 (applicable as form 1.1.2005) (50-70%). Law of 27.8.2009 (applicable as from 1.1.2009) (0-75% + tax on profit) NRW Law of 30.10.2007 (applicable as from 1.1.2008) (15-75% + tax on profit, instead of 80%) Law of 13.11.2012 (applicable as from 1.1.2012) (45-55% + tax on profit) Rhineland- Law of 22.12.2015 (40-90% + tax on profit, instead of 80%) Palatinate Saarland Law of 9.7.2003 (62-72% instead of 80%). Law of 5.5.2010 (52-62%). Law of 4.12.2013 (applicable as from 1.2.2014) (39-49% + tax on profit). Saxony Law of 9.12.1993 (80% instead of 85%) Law of 11.12.2002 (50-70%) Law of 26.6.2009 (applicable as from 1.1.2007) (40-60%)

97 When the casino tax was split into a casino tax and an additional tax on the GGI, this change did not constitute an alteration to the original measure, to the extent that the overall rate remained the same (the change had no effect at all at the level of taxation).

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Law of 14.6.2012 (35-55%) Saxony-Anhalt Law of 26.6.1991 (80-92% instead of 85%) Law of 30.7.1997 (50-80%) Law of 30.8.2004 (70%) Law of 16.12.2009 (25-50% + tax on profit) Schleswig- Law of 8.10.2010 (40-55% + tax on profit, instead of 80%) Holstein Law of 25.4.2012 (30-55%, depending on the games) Thuringia Law of 10.5.1994 (80% instead of 85%) Law of 27.11.1997 (45-80%) Law of 29.3.2011 (25-60% + tax on profit)

(186) Such modifications of the schemes constitute material alterations to the ‘existing’ tax regimes of public casinos operators (where they were existing98). These schemes thus do not qualify, overall, as ‘existing’ schemes, as from the date of the casino tax reduction, but involve (if aid) new aid (for the possible advantage arising from the decrease of the special taxes).

3.3.2.1.3 Automatic reduction of the special taxes in certain circumstances for any operator of public casinos

(187) Moreover, the amount of casino tax (or other special taxes) is, in certain Länder, by law reduced in certain circumstances (see measures 2.a and 4.b). The laws introducing such automatic tax reductions were also adopted after entry into force of the Treaty99, so that at least the possible advantage resulting from these mechanisms would, if aid, constitute new aid.

3.3.2.2 Absence of generally applicable exemptions from trade tax and entertainment tax (municipal taxes) in the West German Länder before entry into force of the Treaty

(188) The generally applicable exemptions from Länder taxes and municipal taxes (which in effect encompasses trade tax and entertainment tax) constitute one of the main features of the tax schemes applicable to public casinos operators. In all West German Länder, they were introduced, together with the casino tax, after entry into force of the Treaty, as explained below. In that regard, the 1938 law cannot be regarded as exempting public casinos operators from Länder taxes and municipal taxes. Article 6(2) of that law was too imprecise and merely laid down a possibility for the competent authorities to lay down, in the future, exemptions from Länder taxes and municipal taxes.

3.3.2.2.1 Exemptions introduced after the entry into force of the Treaty

(189) In 6 Western German Länder, there was no legal basis at all for the exemption from Länder taxes and municipal taxes predating the entry into force of the Treaty (there were also no public casinos and no special taxes – casino tax – in these Länder before that date). The generally applicable exemption from Länder taxes

98 In the West German Länder, the casino tax was generally (i.e. in a law applicable to all operators) introduced after entry into force of the Treaty (see recital (190) and (191) below). In these Länder, it can thus be argued that some of the main features of the schemes applicable today did not even exist before entry into force of the Treaty. 99 And there were before entry into force of the Treaty no similar provisions.

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and municipal taxes and the special taxes were introduced in the laws of the Länder after 1958, as illustrated by the table below.

Land First provision laying down the exemption from Länder taxes and municipal taxes (and the main features of the casino tax) Berlin (Berlin West in Law of 13.4.1973100 1973) Bremen Law of 20.2.1978101 Hamburg Law of 24.5.1976102 Lower Saxony Law of 25.7.1973103 NRW Law of 19.3.1974104 Saarland Spielbankerlaubnis of 22.10.1976 (for the first public casino). Law of 9.7.2003 (generally applicable)105

(190) The adoption after entry into force of the Treaty of laws of the Länder laying down an exemption for public casinos from Länder taxes and municipal taxes constitutes a material alteration to the ‘existing’ tax regimes of public casinos operators. Actually, the introduction of the tax exemptions (and of the special taxes) did not only alter an existing specific tax regime of public casinos operators because such regime did not exist (or only existed to the extent defined by Article 6(1) of the 1938 law), it introduced some of the main features of that very regime. These schemes thus do not qualify, overall, as ‘existing’ schemes, as from the date of the alteration, but involve (if aid) new aid (for the possible advantage arising from the exemption from Länder taxes and municipal taxes).

3.3.2.2.2 Exemptions introduced after the entry into force of the Treaty in Länder where some operators were already tax exempted before entry into force of the Treaty

(191) In the 5 remaining Western German Länder, the currently active public casinos operators are today exempted from Länder taxes and municipal taxes (trade tax and entertainment tax, if any) – and subject to special taxes – also on the basis of laws of the Länder adopted after entry into force of the Treaty, as illustrated by the table below.

Land First provision laying down, in a general/abstract manner, the exemption from Länder taxes and municipal taxes (and the main features of the casino tax) Baden-Württemberg Law of 23.2.1995 Bavaria Law of 26.7.1995 Hesse Law of 21.12.1988 Rhineland-Palatinate Law of 19.11.1985 Schleswig-Holstein Verordnung of 13.12.1994. Law of 29.12.1995

(192) However, contrary to the situation of the previously mentioned 6 West German Länder, there were already public casinos and public casinos operators in these 5 West German Länder before such new provisions were adopted and before the

100 Gesetz über die Zulassung einer öffentlichen Spielbank in Berlin of 13.4.1973 (GVBl. S. 646). 101 Gesetz über die Zulassung einer öffentlichen Spielbank of 20.2.1978 (Brem.GBl. 1978, 67). 102 Gesetz über die Zulassung einer öffentlichen Spielbank of 24.5.1976 (HmbGVBl. Nr. 22, 1976, 139). 103 Gesetz über die Zulassung öffentlicher Spielbanken of 25.7.1973 (Nieders. GVBl. 2. 253). 104 Gesetz über die Zulassung öffentlicher Spielbanken im Land Nordrhein-Westfalen of 19.3.1974 (GV NRW, 93). 105 Saarländisches Spielbankgesetz of 9.7.2003 (Amtsblatt 7.8.2003, S. 2136).

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entry into force of the Treaty. It could thus be argued that these new laws of the Länder introducing in general the tax exemptions for public casinos operators merely replaced ‘existing’ provisions and that this change was merely formal.

(193) This is however not the case. Even if they consider that public casinos operators never paid the trade tax and entertainment tax in these Länder, the German authorities confirmed that there was in these Länder no generally applicable legal basis for the exemption from Länder taxes and municipal taxes predating the entry into force of the Treaty. The tax exemptions allegedly existing before March 1958 were granted only to specific operators (on the basis of individual measures concession contracts or ministerial decisions) and most of the time for a limited duration (the limited length of the concessions in general).

(194) In most cases (Bavaria106, Hesse, Rhineland-Palatinate to some extent107 and Schleswig-Holstein), the German authorities were not able to retrieve the legal provisions exempting the existing public casinos operators from trade tax and entertainment tax before entry into force of the Treaty. In other cases, the tax exemptions indeed existing before March 1958 were granted only individually to certain operators which do not exist anymore (Baden-Württemberg108) and/or only for a limited duration (Rhineland-Palatinate)109. These findings are summarised in the following table.

Land Exemptions from trade tax and entertainment tax existing before entry into force of the Treaty and their evolution Baden-Württemberg Existing exemptions (laid down in 1955 for one specific operator) not applicable since 2003 at the latest. Bavaria No legal provision before entry into force of the Treaty. Hesse No legal provision before entry into force of the Treaty. Rhineland-Palatinate No legal provision before entry into force of the Treaty for the (operator of the) public casino in Bad Dürkheim.

106 Bavaria submitted documents reflecting the view that the exemptions from municipal taxes should normally be granted and that the municipalities received a fraction of the casino tax as replacement for the trade tax and entertainment tax. But it is impossible to determine whether the exempting provisions were granted only for a limited duration (and not for an unlimited time) or for certain operators (and not to any operator in general) or only for certain public casinos (and not to the operator or any operator as such). 107 For the public casino in Bad Dürkheim (one of the two existing public casinos). 108 The existing operator (which operated both existing public casinos) was individually exempted from trade tax and entertainment tax by a notice (Gemeinsamer Bescheid vom Innenministerium und Finanzministerium) of 7.10.1955, which was not limited in time. However, this operator stopped operating in 2003, as it was replaced by the operator of the public casino of Stuttgart, set up in 1995 and exempted on the basis of the 1995 law of the Land. This operator took over the operation of the existing public casinos of Baden-Baden and Konstanz after the concessions expired. See https://www.landtag.nrw.de/portal/WWW/dokumentenarchiv/Dokument/MMI17-195.pdf 109 The existing public casino operator (which operated both existing public casinos) was, with regard to the other existing public casino (in Bad Neuenahr), exempted from municipal taxes by a contract (Vertrag) of 3.11.1948 between the municipality of Bad Neuenahr and the operator. This contract was valid only for the duration of the contract signed by the operator and the Land and was repealed by another contract (Vertrag) of 19.10.1962 between the municipality of Bad Neuenahr and the operator (which laid down new exemptions from municipal taxes). The contracts (Verträge) of 11.12.1948 and 26.9.1949 between the Land and the operator of the two existing public casinos had a duration of 15 years. The contracts were automatically renewable but the Land had the possibility to oppose the renewal. By act of 20.2.1963 (section XIII), the contracts (Verträge) of 11.12.1948 and 26.9.1949 ceased to be in force as from 1.7.1963 and were replaced by the provisions laid down in the act of 20.2.1963.

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Exemptions for the (operator of the) public casino in Bad Neuenahr expired in 1962. Schleswig-Holstein No legal provision before entry into force of the Treaty.

(195) In conclusion, the exemption from municipal taxes (trade tax and entertainment tax) benefitting the public casinos operators constitutes, in all the Länder at stake, new features of the current schemes, at least since 2003. The public casinos operators in these Länder are, at least since 2003, exempted from these taxes on the basis of laws adopted by the Länder after entry into force of the Treaty. These schemes thus do not qualify, overall, as ‘existing’ schemes, as from that date. They involve (if aid) new aid (for the possible advantage arising from the exemption from Länder taxes and municipal taxes).

3.3.2.3 Introduction, after entry into force of the Treaty, of a new tax from which all public casinos operators in all Länder are exempted

(196) According to the German authorities, the exemption from income taxes laid down by Article 6(1) of the 1938 law, as interpreted by the 1954 'administrative agreement' (Verwaltungsabkommen), covers surcharges related to corporate tax and income tax. The solidarity surcharge (Solidaritätszuschlag), introduced in 1991, constitutes such a surcharge and public casinos operators in all Länder are thus exempted from it following Article 6(1) of the 1938 law. Because the tax was introduced after entry into force of the Treaty, the corresponding exemption is, according to the case law110, (in each Land) a ‘new’ measure which (if aid) would involve new aid.

3.3.3 Conclusion on the qualification as existing aid or new aid

(197) The reductions of the casino tax for specific public casinos operators introduced by ad hoc decisions of the public authorities (measures 2.b and 4.c, listed in Annex 1) would (if aid) constitute new aid measures.

(198) As regards the special tax schemes applicable to the public casinos in each Land (schemes assessed under measure 5, including measures 1, 2.a and 4.b), they seem, at this stage, to give rise to new aid (if aid), at least to the extent mentioned in recitals (186), (187), (190), (195) and (196), as from March 2007111 in all German Länder, because of various alterations to the existing schemes.

4. CONCLUSION

After a preliminary investigation, the Commission considers that a number of measures complained about involve no aid. Measure 3 concerning the deduction from the tax base of the trade tax and the corporate tax of the sums paid as ‘profit skimming’ (Gewinnabschöpfung) by the public casinos operators in NRW (concerning their non- gambling activities) involves no (selective) advantage, and therefore no aid. Concerning the alleged general profitability guarantee (Measure 4.a), there is no such general guarantee and therefore no State aid.

110 See Judgment of the Court of Justice in case C-74/16, Congregación de Escuelas Pías Provincia Betania, ECLI:EU:C:2017:496, paragraph 88. 111 In view of the limitation period of 10 years starting as from 8 March 2007 (see above).

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However, the Commission preliminarily considers that it cannot exclude at this stage that the special tax rules applicable to public casinos operators (i.e. the schemes of the Länder grouped under measure 5, including measure 1, measures 2.a and 4.b) could provide State aid to the public casinos operators, which would involve new aid, to the extent set out in section 3.3.3 above. In the same vein, the Commission preliminarily considers that the ad hoc decisions of the public authorities to reduce the special taxes of certain public casinos operators in case of new casino openings (measure 2.b) or in other circumstances (measure 4.c) could amount to State aid, which would, to the extent set out above, involve new aid. The Commission also has doubts whether such aid (if any) could be declared compatible with the internal market.

The Commission has therefore decided to initiate the formal investigation procedure provided for in Article 108(2) TFEU in respect to the following measures:

- The special tax rules generally applicable to public casinos operators (schemes of the Länder grouped under measure 5), composed of several tax exemptions and specific taxes (including all their features, namely also the automatic reductions of such taxes by the offsetting mechanisms mentioned in the context of measure 1 as well as the automatic reductions in cases of new openings of public casinos referred to as measure 2.a and in other circumstances, referred to as measure 4.b);

- The ad hoc decisions of the public authorities to reduce the casino tax (or other special taxes applicable to the public casinos operators) for specific operators in case of openings of new public casinos and under other circumstances (measures 2.b and 4.c, see list of measures in Annex 1).

In view of the limitation period of 10 years as explained above in recital (100), it seems appropriate to carry out this deeper examination as from March 2007.

In the light of the foregoing considerations, the Commission, acting under the procedure laid down in Article 108(2) of the Treaty on the Functioning of the European Union, requests Germany to submit its comments and to provide all such information as may help to assess the aid/measure, within one month of the date of receipt of this letter. It requests your authorities to forward a copy of this letter to the potential recipient of the aid immediately.

The Commission wishes to remind Germany that Article 108(3) of the Treaty on the Functioning of the European Union has suspensory effect, and would draw your attention to Article 16 of Council Regulation (EU) 2015/1589, where negative decisions are taken in cases of unlawful aid, the Commission shall decide that the Member State concerned shall take all necessary measures to recover the aid from the beneficiary.

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The Commission warns Germany that it will inform interested parties by publishing this letter and a meaningful summary of it in the Official Journal of the European Union. It will also inform interested parties in the EFTA countries which are signatories to the EEA Agreement, by publication of a notice in the EEA Supplement to the Official Journal of the European Union and will inform the EFTA Surveillance Authority by sending a copy of this letter. All such interested parties will be invited to submit their comments within one month of the date of such publication.

Yours faithfully For the Commission

Margrethe VESTAGER Executive Vice-President

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ANNEXES

Annex 1 – Ad hoc decisions of the public authorities to reduce the casino tax and/or other special taxes for specific public casinos operators (measures 2.b and 4.c)

Link with Taxpayer - Reduction (type measure Land Tax year Legal basis112 Beneficiary of tax, rate) targeted by the complaint Baden- Baden- Württembergische 2007113- Weitere §12(2), sentence measure 4.c Württemberg Spielbanken GmbH 2009 Leistungen114 1115 & Co. KG Staatsbetriebe of SBA116 the Freistaat Bavaria 2017 (25%instead of §5(7) measure 4.c Bayern/Staatliche 30%) Lotterieverwaltung Spielbank Berlin SBA (65,11% 2008 §227 AO117 measure 4.c GmbH & Co. KG instead of 80%) (before 2017- 2018: Spielbank Berlin Gustav Berlin Jaenecke GmbH & SBA (55,04% 2009 §227 AO measure 4.c Co. KG) + Neue instead of 80%) Deutsche Spielcasino GmbH & Co. KG Erlass des Brandenburgische SBA (reduction by 2007113- Ministeriums der Brandenburg Spielbanken GmbH the amount of measure 4.c 2012 Finanzen vom 27. & Co. KG VAT)118 Juli 2006 Brandenburgische 2011- SBA (reduction of Brandenburg Spielbanken GmbH §11(4) measure 4.c 2012 10%) & Co. KG Bremer 2007113- Bremen Spielcasino GmbH SBA §5(2), sentence 3 measure 4.c 2017 & Co. KG Spielbank 2007113- Hamburg Hamburg Jahr + Sonderabgabe §3(1), sentence 3 measure 4.c 2013 Achterfeld GmbH

112 Unless otherwise indicated, this column refers to the provisions of the applicable laws on public casinos of the Länder (Spielbankgesetz). 113 In view of the limitation period for the recovery of aid (beginning on 8 March 2007), this list does not cover possible aid awarded before 8 March 2007. 114 The tax was reduced (by ad hoc decisions) especially to take into account the additional VAT paid as from the 2006 reform subjecting public casinos operators to VAT. 115 In combination with §227 of the tax ordinance (Abgabenordnung or AO). 116 Spielbankabgabe. 117 Abgabenordnung (German tax ordinance). 118 The casino tax was reduced (by ad hoc decisions) to take into account the additional VAT paid as from the 2006 reform subjecting public casinos operators to VAT.

Link with Taxpayer - Reduction (type measure Land Tax year Legal basis112 Beneficiary of tax, rate) targeted by the complaint & Co. KG

Kurhessische Spielbank 2007113- Kassel/Bad SBA measure 4.c 2018 Wildungen GmbH & Co. KG Spielbank Bad Homburg Wicker 119 Hesse & Co. KG (until 2008- §11 and §12(3) SBA measure 4.c 2012) / François- 2018 Blanc-Spielbank GmbH (since 2013) Spielbank 2009- Wiesbaden GmbH SBA measure 4.c 2017 & Co. KG

SBA (65% instead §4(2), sentence 2007113 measure 4.c of 80%) 2120 Casino Duisburg measure 2.b GmbH & Co. KG 2008- SBA (35% instead §12(2), sentence 4 (opening in 2010 of 50%) Duisburg)

SBA (65% instead NRW 2007113 of 80% for grosses §4(2), sentence 2 measure 4.c Spiel) Westdeutsche SBA (2009: 35% Spielbanken GmbH as from 1.10; & Co. KG 2009- 2010: 25% as §12(8) measure 4.c 2012 from 1.3; 2011- 2012: 25% until 30.11.2012) §7(2), sentence 6 2008- then (as from SBA measure 4.c 2015 2012) §6(2), sentence 6 Spielbank Mainz / 2013- SBA §227 AO measure 4.c Trier / Bad Ems 2014 Rhineland- GmbH & Co. KG Palatinate for new openings 2010- measure 2.b- SBA §7(2), sentence 5 2014 (opening in Mainz Spielbank Bad measure 2.b 2009- Neuenahr GmbH & SBA §7(2), sentence 5 (opening in 2013 Co. KG Nürburg)

119 In combination with §163 AO. 120 In combination with § 11(2) der Rahmenerlaubnis für WestSpiel vom 11.4.1975.

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Link with Taxpayer - Reduction (type measure Land Tax year Legal basis112 Beneficiary of tax, rate) targeted by the complaint

§7(2), sentence 6, 2008- then (as from SBA measure 4.c 2015 2012) §6(2), sentence 6

2014 SBA §227 AO measure 4.c

measure 2.b 2008- SBA (reduction of (opening in §11(2) 2013 10%) Neunkirchen in 2009) Saarland-Spielbank Saarland 2009- SBA (reduction of GmbH §11(7) measure 4.c 2011 1.5%)

2013- SBA (reduction of §11(7) measure 4.c 2014 10%)

SBA (reduction to 2007113 measure 4.c 27%)

Spielbanken Saxony- Sachsen-Anhalt SBA (reduction to §3(2), sentence 6 Anhalt GmbH 25%, then to 20%) 2008- Zusatzabgabe measure 4.c 2009 (reduction to 10% then to 5%)

Weitere Leistung Casino Erfurt Thuringia 2009 (reduction of §227 AO measure 4.c GmbH & Co. KG 0,402 M€)

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Annex 2 – Measures complained about121

A. In the context of measure 2 (reduction of the casino tax in case of new openings: measures 2.a and 2.b)

Automatic or Used or not in the period Land Legal basis122 optional under review Baden-Württemberg §33(2) Optional (2.b) Not used § 11(1), Hesse Optional (2.b) Not used sentence 1 Mecklenburg- §7(2), Assessed in the context of Automatic (2.a) Vorpommern sentence 2 Measure 5 §12(2), NRW Optional (2.b) Not used sentence 3 §4(1), Assessed in the context of Lower Saxony Automatic (2.a) sentence 4 Measure 5 Assessed in the context of Saarland §11(2) Automatic (2.a) Measure 5 Assessed in the context of Saxony §11(2) Automatic (2.a) Measure 5

B. In the context of measure 4 (reduction of the casino tax in other circumstances: measures 4.b and 4.c)

Legal Used or not in the period Land Automatic or optional basis123 under review Baden- §33(3) Optional (4.c) Not used Württemberg Used (see Annex 1), Bavaria §5(7) Optional (4.c) assessed in the context of Measure 4 Brandenburg §11(3) Optional (4.c) Not used Used (see Annex 1), §5(2), Bremen Optional (4.c) assessed in the context of sentence 3 Measure 4 Automatic (part of the §3(1), Assessed in the context of Hamburg generally applicable sentence 2 Measure 5 scheme) (4.b) Automatic (part of the Assessed in the context of Hesse §10(2) generally applicable Measure 5 scheme) (4.b)

121 The scope of the present decision is not limited to the list of measures complained about. 122 Unless otherwise indicated, this column refers to the provisions of the applicable laws of the Länder on public casinos (Spielbankgesetz). 123 Unless otherwise indicated, this column refers to the provisions of the applicable laws of the Länder on public casinos (Spielbankgesetz).

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Used (see Annex 1), Rhineland- §6(2), Optional (4.c) assessed in the context of Palatinate sentence 6 Measure 4 Used (see Annex 1), Saarland §14(7) Optional (4.c) assessed in the context of Measure 4

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Annex 3 – List of laws of the Länder on public casinos, legal basis for the VAT offsetting mechanisms (measure 1) and for the exemptions from local and municipal taxes

Land Laws of the Länder on public casinos VAT Tax offsetting exemption (measure 1) Baden- Landesglücksspielgesetz (LGlüG) vom 20. November §33(5) §39 Württemberg 2012 (GBl. 2012, 604) Bavaria Gesetz über Spielbanken im Freistaat Bayern §5(8) §9 (Spielbankgesetz – SpielbG) vom 26. Juli 1995 (GVBl. S. 350, BayRS 2187-1-I ) Berlin Gesetz über die Zulassung öffentlicher Spielbanken in §3(8) §7 Berlin (Spielbankengesetz - SpBG) vom 8. Februar 1999 (GVBl. S. 70) Brandenburg Gesetz über die Zulassung öffentlicher Spielbanken im §11(9) §11(4) Land Brandenburg (Spielbankgesetz - SpielbG) vom 18. Dezember 2007 (GVBl. I S. 218, 223) Bremen Gesetz über die Zulassung einer öffentlichen §5(2) §8 Spielbank vom 20. Februar 1978 (Brem.GBl. 1978, 67) Hamburg Gesetz über die Zulassung einer öffentlichen §3(2) §5(6) Spielbank 24.05.1976 (HmbGVBl. Nr. 22, 1976, 139) Hesse Hessisches Spielbankgesetz vom 15. November 2007 §8(5) §7(2) (GVBl. I S. 753) Mecklenburg- Spielbankgesetz des Landes Mecklenburg- §7(7) §11(3) Vorpommern Vorpommern (Spielbankgesetz - SpbG M-V) vom 17. Dezember 2009 (GVOBl. M-V 2009, S. 721) Lower Saxony Niedersächsisches Spielbankengesetz (NSpielbG) vom §4(9) §8 16. Dezember 2004 (Nds. GVBl. 2004, 605) NRW Gesetz über die Zulassung öffentlicher Spielbanken im §12(3) §18 Land Nordrhein-Westfalen (Spielbankgesetz NRW - SpielbG NRW) vom 13. November 2012 (GV. NRW. S. 524) Rhineland- Spielbankgesetz vom 19. November 1985 (GVBl. §6(4) §8a Palatinate 1985, 260) Saarland Saarländisches Spielbankgesetz (SpielbG-Saar) vom §14(1) §19 20. Juni 2012 (Amtsblatt 2012, S. 156) Saxony Sächsisches Spielbankengesetz – vom 26. Juni 2009 §11(8) §15 (SächsGVBl. S. 318) Saxony-Anhalt Spielbankgesetz des Landes Sachsen-Anhalt (SpielbG §12(5) §17 LSA) vom 16. Dezember 2009 (GVBl. LSA 2009, 691) Schleswig- Spielbankgesetz des Landes SH vom 29. Dezember §8(2) §10 Holstein 1995 (GVOBl. 1996, 78) Thuringia Thüringer Spielbankgesetz (ThürSpbkG) vom 15. §3(5) §7 April 2004 (GVBl. 2004, 473)

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