Shares in FTSE 250 betting group Betfair have taken a dive after the company revealed its plans to withdraw its exchange product from the German market.
The decision was made after tax authorities failed to agree to an interpretation of the new law in Germany that applies a 5% tax on stakes on sports betting in the country.
The company told investors that it believes that because it is not an organiser of sports betting, its bets placed on its exchange do not come under the law, which was introduced in July of this year.
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The firm has made clear that a tax at this rate would make Betfair's current exchange model "unviable".
In the 2012 full year, about 4% of core Betfair revenue came from Germany and this delivered a contribution of around £6m before the allocation of central costs. The firm is planning to review its operations in the country and said the on-going contribution from Germany will be minimal.
The company had taken legal advice and consulted with the relevant tax authorities to seek clarification on interpretation of the law and its applicability to exchanges.
However, to date the tax authorities have not been able to agree to an interpretation of the law that would allow Betfair to continue to offer the exchange product, the firm said.
"The company believes that it has fulfilled all of its obligations under German law, including the filing of necessary tax returns. Discussions are continuing with tax authorities regarding the potential tax liability, if any, arising from bets placed on its exchange since the law came into effect," it added.
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