Brazil stakeholders warns against potential hefty tax requirements for the betting sector, including the potential for players to have to back-pay taxes for grey market betting.
Amid the excitement over the newly regulated betting market in Brazil, the industry is concerned that operators will face huge tax bills within the first year of legal online gambling.
The licensed betting market in Brazil launched on 1 January, with a 12% tax rate on gross gaming revenue (GGR) for operators, as well as a 15% tax on player winnings over BRL2,824 (£437.77/€508.05/$547.25).
Additionally, fixed-odds betting was included in the recent tax reform in Brazil, with the sector now expecting to face a consumption tax, dubbed by some as a ‘sin tax’, from 2026.
Fourteen operators currently hold full licences, including local company Rei do Pitaco, which turned its attention from fantasy sports to fixed-odds betting ahead of the market launch.
On Tuesday (14 January) Rei do Pitaco’s chief legal officer Rafael Marchetti Marcondes warned on a Vixio webinar, entitled “The Future of Gambling in Brazil”, the impact of high taxes, could stifle the growth of many operators.
Marcondes drew from his experiences of over 20 years spent in the tax sector prior to joining the betting industry.
“When we talk about tax, it is always something that concerns the operators and everybody that does business in Brazil because we tend to have very high taxes and a prohibitive tax can be complicated to develop the business healthily locally,” he said.
“The Brazilian Federal Revenue Service is quite aggressive, so even when they don’t have solid [legal] grounds, they try to increase the amount of money they intend to bring to the government.”
Fear of betting back taxes in Brazil
Earlier this month the regulator of gambling in Brazil, the Secretariat of Prizes and Bets (SPA), announced it had partnered with the Federal Revenue Service (RFB) to form a working group with the aim of ensuring the sector is meeting the tax requirements set out in last year’s regulations.
Five years passed between the National Congress first approving legislation for online betting in November 2018 and the Chamber of Deputies finally giving the green light, with Brazil observing a proliferation of betting sites over that period. Some claim Brazil has the most access to betting sites anywhere in the world.
With so many companies operating during that delay without paying any taxes, the launch of the working group has sparked industry concern over the possibility that back taxes could be enforced, as the government tries to reclaim the revenue it missed out on during those five years.
In November, the SPA published an ordinance establishing the process for the migration of data and funds to the regulated market, an ordinance Luiz Felipe Maia, founding partner of Brazilian law firm Maia Yoshiyasu Advogados, strongly opposed.
“The reason why I was so strongly against it was because it creates evidence of an ongoing operation,” Felipe Maia said. “Basically you’re transferring the clientele, the funds, the brand. And in Brazil one of the legal consequences is succession on all liabilities, including tax liabilities.”
“A lot of noise”
Felipe Maia explains while offshore operators weren’t subject to corporate taxation in Brazil, players were liable for income tax on winnings and therefore the government could try to collect back taxes from players.
That liability could be shifted to the operators, something Felipe Maia explained is against Brazil’s constitution.
“There is no legal basis for that,” Felipe Maia continued. “That would be clearly unconstitutional, but it wouldn’t be the first time we see unconstitutional tax obligations or tax laws being created.
“Of course, it would be subject to the courts to decide that it’s not constitutional, but if they decide to go after the players, they may request from the operators the list of all prizes paid in the last five years. And that could generate a lot of noise and a lot of problems for the industry.”
Rei do Pitaco unaffected by back taxes
Rei do Pitaco, however, wouldn’t be impacted by back taxes due to its decision to only operate fantasy sports in the lead-up to full regulation on 1 January.
Marchetti Marcondes expects other operators that didn’t follow Rei do Pitaco’s path to face challenges.
“Here at Rei do Pitaco, we decided to not go offshore and just work here in the daily fantasy industry without expanding our activity to the betting market because we have a very conservative board in the sense they were favourable for us not taking this risk,” Marchetti Marcondes explained.
“I believe for lawyers it is a great opportunity, [but] for the industry there may be some difficult moments because everybody will be in a new regulated market with several challenges.”
The rate for the proposed consumption tax on fixed-odds betting hasn’t yet been set and Marchetti Marcondes fears if it is too high, this could ultimately harm the industry based on experiences elsewhere, particularly in Europe.
“It should be in my opinion also a concern for the federal government because international experience shows that when taxes are too high, it pushes people into the black market,” Marchetti Marcondes added. “So in the end, that hurts not only the industry but also the government and even devalues the official licences.
“We’ve seen this happen in places like France and Portugal and it’s something that we as an industry are watching closely.”
Are ongoing court battles actually helping the Brazil betting industry?
In the second half of 2024, the betting sector in Brazil was hit with a number of court hearings, including a hearing at the Federal Supreme Court (STF) to decide whether the country’s betting laws are unconstitutional.
The conclusion of that case is expected to come in H1 2025, although Felipe Maia feels it’s “unlikely” the STF will rule against the current betting regulation in place.
Additionally, the federal government has been engaged in a legal battle with the Rio de Janeiro State Lottery (Loterj) over the regulator’s belief its licensees should be able to operate nationwide.
Earlier this month, STF minister André Mendonça passed a preliminary decision banning national activities from Loterj-licensed brands and Felipe Maia believes the ruling’s recognition of the validity of federal betting laws was a positive sign.
Marchetti Marcondes agreed, saying: “I think that these kind of discussions are helping in a sort of way to speed up the maturity of the Brazilian market and that’s a really good thing.
“But regardless of how the courts ultimately rule, the process is bringing much needed clarity to both foreign investors and local entrepreneurs to better define their business plans and strategies.”
