BFH: German poker player must pay tax on winnings

On the 29th of June, the Federal Fiscal Court published an interesting press release regarding the taxation of poker winnings. It states that winnings from online poker may be subject to income tax in Germany. But under what conditions will poker winnings be taxable in this country?

According to the Federal Fiscal Court (BFH), winnings from online poker may be subject to income tax. This is particularly the case if a "market is exploited in a planned manner using professional experience" (= so-called "professional gambler"). More than two years ago, we reported on GambleJoe about a case in which a then 20-year-old won thousands of euros playing poker. At the time, the tax court in Münster ruled that this income from online poker was subject to income tax. The plaintiff poker player appealed this decision to the BFH. On 29 June 2023, the BFH has now published a press release (No. 31/23) on the decision X R 8/21 of 22 February 2023.

Mathematics student made a lot of money playing online poker - and has to pay tax

The then 20-year-old mathematics student started playing online poker in 2007. After initially playing for a limited amount of time and placing small bets, he managed to win more than €80,000 in 2009. In the months from July to December 2009 alone, he played a total of 673 hours. The successful poker player was then asked to pay income tax on his poker winnings, as he had been engaged in commercial activities since October 2009 at the latest.

According to the BFH, poker is not purely a game of chance, but also contains elements of skill. In Germany, however, only winnings from pure games of chance - such as casino or lottery winnings - are tax-exempt. But at least hobby and leisure players can keep their poker winnings tax-free.

The complaining ex-student, however, appeared to be quite a talented poker player. According to the BFH ruling, he won more than two million euros playing poker within a few years:

• 2009: 105.000 Euro
• 2010: 445.000 Euro
• 2011: 645.000 Euro
• 2012: 735.000 Euro
• 2013: 400.000 Euro

The BFH's ruling stated, among other things, that "the plaintiff acted independently, on a sustained basis (with repeated intent) and with the intention of making a profit".

Furthermore, the judges argued that "playing more than 784,000 hands goes far beyond what the general public still understands by a hobby".

Back in April we published an article on GambleJoe on the subject of "professional gamblers" in Germany. In that article we already mentioned the fact that "professional gamblers" are subject to income tax in this country.

What are the requirements for a "professional player"?

According to the BFH, only those poker players who are considered to be "professional players" are liable for tax. In the ruling, the court refers to the model of the professional player. Here, a market is exploited in a planned manner using professional experience.

For recreational and hobby players, on the other hand, winnings and losses from online poker have no tax implications as long as it is a purely private activity.

However, if the player is doing more than "just" satisfying the need to play, but is pursuing the goal of generating recurring income, then the activity must be considered commercial and the player is a "professional player" who is subject to tax accordingly. The full BFH ruling is available online here at the Federal Fiscal Court.

By the way: In Canada too, several successful poker players have been ordered to pay a total of CAD 3.75 million in taxes in 2021. The Canadian authorities argued similarly to the BFH and accused the poker players of being "professional gamblers". In this case, they would also have to pay taxes on their poker winnings.

Conclusion

For hobby players, winnings from poker games continue to be tax-free in Germany. The same applies in principle to winnings from pure games of chance (e.g. slot machines, lottery). However, if you play a game of chance with a skill component, such as poker, and the tax office considers you to be a "professional gambler", you will have to pay tax on your poker winnings. Of course, the player can deduct any previous losses from the taxable winnings.

Image source: https://pixabay.com/de/photos/poker-blackjack-kasino-schwarz-rot-1264076/