E-sport - current status of non-profit eligibility

In the ever rapidly growing and equally rapidly changing marketplace and competitive arena of e-sports, what is clear(er) for traditional sports is still unclear for e-sports: do associations, foundations or corporations that promote e-sports pursue charitable purposes within the meaning of Sec. 52 (2) No. 21 of the German Fiscal Code (GFC) [Abgabenordnung, AO]?

If this is the case, namely, this could result in several possible tax benefits. These include, for example, corporate income tax exemption, a reduced VAT rate or even VAT exemption up to the privileged deductibility of donations. However, the definitional basis is lacking: besides an inadequate legal situation, there is also a lack of uniform case law. In addition, there is little discernible political will to act, despite corresponding declarations of intent in the last two coalition agreements.

Lack of a legal definition of sport

There is no uniform legal definition of “sport” - and hence also none for e-sport. If you try to define the term “sport”, its indeterminacy quickly becomes apparent. The Federal Fiscal Court (Bundesfinanzhof, BFH) applies the following definition in its established case law (see, for example, BFH ruling dated 9 February 2017 - V R 69/14): “In the absence of a statutory definition, the term sport includes only activities that meet the general definition of sport and are for the purpose of physical exercise. Therefore, the prerequisite is a physical activity beyond the otherwise usual scope and is characterised by externallyobservable efforts (...).” The Federal Fiscal Court consequently relies on a general definition and understands “sport” as always being a physical and externally observable activity (BFH ruling - V R 69/14).

In the past, on this basis, the following activities, for example, were recognised as sports within this meaning:

• motor sports
• shooting sports
• sailing
• ballooning
• golf
• billiards
• tournament rotary-bar table soccer

Not recognised as sports were, for example:

• table soccer (Tipp-Kick game)
• tournament bridge
• skat
• BBQs [“Grillsport”]
• tournament paintball
• “Go” game, “Gotcha”

Perspectives, opportunities and risks

The above examples show: e-sports arguably cannot quite simply be classified as physical activity beyond the usualscope. At least in comparison with the sports recognised as being non-profit, e-sports do not go beyond the usual scope of movement (walking, standing and sitting), but are characterised by playing a game using a controller or keyboard and mouse, usually while sitting. This view also prevails in the relevant specialist literature. Admittedly, one has to acknowledge that the e-sportsman's motoric performance, ability to concentrateand react to the game content while simultaneously analysing the gameplay requires at least a degree of concentration beyond the usual scope. However, this cannot compensate for the lack of physical movement component. Moreover, the additional comment in brackets (“chess is considered to be a sport”) contained in Sec. 52 (2) No. 21 GFC clearly shows adherence to the physical activity requirement. Only in this way can the inclusion of chess by means of fiction be understood.

Furthermore, the characteristic of physical activity is central in this debate because it is the legitimising reason for the fiscal promotion of sports. The wording “promotion of the public interests” (Sec. 52 (2) sentence 1 GFC) makes it clear that a charitable purpose should always include a common benefit. If an activity only serves the purpose of one’s own, private leisure time activities, state funding does not come into consideration. The benefit of sport to the public is primarily considered to be the physical activity and the associated promotion of citizens’ health.

Given the current legal opinion and the present legal framework, the chances of e-sports clubs gaining access to tax-based sports funding are slim. So far, no e-sports club is known to have succeeded. Leipzig eSports e. V. is an exception. However, even in the case of this pure e-sports club, it was not the promotion of the sport pursuant to Sec. 52 (2) No. 21 GFC that was confirmed, but rather the promotion of the charitable purpose of youth welfare (Sec. 52 (2) No. 4 GFC).

It remains to be seen whether and how the legislator will implement the goal formulated in the coalition agreement between the SPD, BÜNDNIS 90/DIE GRÜNEN and the FDP of recognising e-sports as being eligible for non-profit status. The German government is currently experiencing renewed pressure as a result of an enquiry by the CDU/CSU parliamentary group dated 18 October 2022. It enquired whether the contents and a timetable for the reform elements for the non-profit status of e-sports had been determined in the meantime. The answer is still awaited.

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