Tax investigation targets online poker: When the game gets serious.

At the end of 2023, numerous online poker players who had carried out their activities on various platforms received mail from the tax investigation authorities. Some of these players were asked to complete a questionnaire regarding their poker activities. Others were immediately confronted with the opening of criminal proceedings on suspicion of tax evasion. But what is actually behind these incidents? This article will provide you with comprehensive information.

The Tax Transparency Act platforms

The Platform Tax Transparency Act (PStTG), which came into force in 2023, plays a key role in this context. This law aims to optimize the collection and taxation of income generated via digital platforms. It is a response to the challenges faced by traditional methods of tax collection in the digital economy and underlines the need to adapt the tax framework to the realities of the digital age.

The PStTG explicitly addresses operators of digital platforms that act as intermediaries between providers and consumers of services that lead to taxable income. This includes a wide range of platforms, including those for the rental of real estate, trading platforms, platforms for freelance services and, last but not least, platforms that provide gambling services such as online poker. Their operators are expected to systematically submit detailed information on users and their income generated via the platform to the competent tax authorities.

Specifically for the online poker sector, the PStTG implies that platforms offering such games could be obliged to pass on comprehensive data about their users and the winnings generated through poker to the tax authorities. This measure becomes particularly important if the winnings from online poker are classified as commercial income according to the case law of the Federal Fiscal Court. The transparency introduced by the PStTG enables these winnings to be recorded more efficiently for tax purposes and ensures that they are reported correctly in players’ tax returns.

In addition to the entry into force of the new Poker Tax Transparency Act (PStG), the Federal Fiscal Court published a new ruling regarding the taxation of online poker games on February 22, 2023.

What does the new ruling of the Federal Fiscal Court from February 22, 2023 say about the taxation of online poker?

Definition of commercial activity in tax law:

German tax law defines commercial activity using specific criteria that distinguish it from other types of income such as agriculture and forestry, self-employment or capital assets. The ruling of the Federal Fiscal Court (BFH) from February 22, 2023, case number X R 8/21, explicitly applies these criteria to online poker in order to determine under which circumstances poker winnings are commercial and therefore taxable.

How does the new ruling differ from previous decisions?

Commercial nature of online poker:

Previous rulings have focused on the general conditions of commerciality in poker, including tournament and casino poker, with an emphasis on regularity and professionalism.

New ruling specializes in online poker and specifies how the commercial criteria are applied in this digital context, including the use of professional experience and the planned exploitation of the market.

Criteria for commerciality:

Previous rulings emphasized a systematic, professional approach and specialized knowledge.

New ruling deepens the consideration specifically for the online environment, emphasizing the role of analytics software and the importance of the virtual space as a place of business.

Operating facility:

Earlier rulings treated physical presence in casinos or at tournaments as a relevant component.

New ruling emphasizes the importance of the virtual gaming location as a permanent establishment, which represents an innovation in the tax law consideration of online poker.

Differentiation from private activities:

Earlier rulings focused on the distinction between professional and hobby gaming.

New ruling fine-tunes this delineation by considering the unique aspects of online poker, such as the use of game analysis software, game type, number of games, number of player names, and intense involvement with the game.

Summary:

The ruling of 22 February 2023 marks a significant step in the tax assessment of online poker by specifying the requirements for commerciality and adapting them to the digital characteristics of the game. It underlines the need for online poker players to review their activities with regard to the tax criteria and declare them accordingly.

What steps are necessary if you have already received a letter from the tax authorities regarding online poker income?

1. Individual legal assessment of the case

Each case reveals individual details and circumstances, even in comparison to the case discussed in a decision of the Federal Fiscal Court. It is therefore crucial to legally analyze the specific facts of the case to determine whether the conditions for commercial activity are met. This legal assessment forms the basis for the response to the letter received. Even if you come to the conclusion that the income is not to be classified as commercial income in accordance with Section 15 EStG, it is necessary to respond fully to inquiries from the tax authorities. This is particularly important if commercial income is under discussion. On the one hand, there is an obligation to cooperate in ensuring proper taxation; on the other hand, the principle of “Nemo tenetur se ipsum accusare” applies, which states that no one is obliged to incriminate themselves under criminal law.

2. Consideration of filing a voluntary disclosure

In view of the fact that it can be assumed under the PStTG that extensive data from online poker platforms has been transmitted to the tax authorities, cooperation with the tax authorities appears advisable. In particular, proactive disclosure offers considerable advantages as long as the possibility of voluntary disclosure exists and this can lead to impunity. A reason for excluding voluntary disclosure could be the discovery of the offense or the initiation of criminal proceedings.

Even in the worst case scenario, if a voluntary disclosure is deemed to have failed, this can be taken into account as a mitigating circumstance when assessing the sentence. It is important that the voluntary disclosure includes all undeclared income from the last ten years and that the subsequent payment of the reduced taxes and all fringe benefits is made in order to fulfill the requirements for an effective voluntary disclosure.

Conclusion

In its most recent decision, the Federal Fiscal Court (BFH) recognized the possibility that income from online poker games can be classified as commercial and defined a number of criteria for this. Regardless of whether there is actually commercial income from online poker games, there is always a need for action with regard to the inquiries made by the tax authorities about this income. Answering these inquiries requires careful and individual consideration.