German publishers are among those facing a serious competitive disadvantage in their global marketing effort – profit-cutting “double taxation”. A company generating revenue from players in other EU states may be required to pay sales tax or VAT in Germany as well as in the respective foreign country. The workshop “Sales Taxes in Telecommunications and Media” on 21 May 2012 in Berlin focuses on this complex subject.
Ingo Vahl, Finance Director and Company Lawyer at ATLAS Interactive, will examine the impact on the German games industry and the options businesses have to avoid double taxation. The Federal Association of the Computer Games Industry (G.A.M.E. – Bundesverband der Computerspieleindustrie e.V.) and the German Association for Telecommunication and Media (DVTM Deutscher Verband für Telekommunikation und Medien) are the event organizers.
Cash flow according to industry-specific sales tax regulation until 2009
Payments from the player to the game provider follow the telecommunications chain. An example: subscriber – network operator – ATLAS Interactive – game provider. According to the “industry solution”, as reflected by Sect. 45 h para. 1 Telecommunications Act (TKG) in conjunction with Sect. 3 para. 11 Value Added Tax Law (UStG), the national network operators remit the sales tax portion of the collected earnings directly to their local tax authorities. The network operator costs and ATLAS Interactive’s margin are deducted, and the remaining amount is passed on as earnings to the client companies.
Changes in taxation since 2009
German game providers have been faced with incremental changes in this practice since 2009. The German tax authorities currently only apply the original, industry-specific scheme to domestic sales. If the paying gamer and network operator are located in another EU country, any revenues generated are still subject to German value added tax. If the foreign network operators have already remitted sales tax on the gross receipts to their local tax office, sales tax or VAT is actually paid in two instances, thus resulting in “double taxation”. This situation puts German game providers at a significant disadvantage. Until now, the German tax authorities have not established a common standard practice regarding the prevention of double taxation and application of interim rulings.
Payment service provider ATLAS Interactive is the partner of several companies in the computer games and entertainment industry marketing their digital products globally. The sale of in-game items is transacted by way of web billing, premium SMS or telephone-based billing. This is the part handled by ATLAS Interactive. Agreements must be reached with a multitude of national/local network operators around the world to ensure that text messages and phone calls are routed to the ATLAS Interactive servers. The company has implemented such arrangements in more than 85 countries to date.