In recent days, the federal government has announced that it will issue a provisional measure (PM) to tax betting platforms based outside Brazil.
Apparently, the justification for adopting the measure is the fact that such entities, despite not having an establishment in Brazilian territory, operate freely without paying any tax.
As is known, such entities are not authorized to operate these activities in Brazilian territory, due to a legal prohibition that, roughly speaking, criminalizes gambling.
Pending the legal solution that the Brazilian State will give to the problem, some doubts arise:
A. Could the government receive public revenue from illegal activity?
B. If so, how to tax such activities if you do not have a residence in Brazilian territory?
Before answering these points, it is worth noting that two bills are currently being processed (Bill nº 442/1991 and Bill nº 186/2014) that aim to legalize betting and gambling in Brazilian territory, precisely with a proposal to tax such activities.
In other words, the National Congress would have the opportunity to give its opinion on the matter and also to establish the way in which such activities would be addressed in terms of taxation, collection and expenses.
(For the reader interested in the subject, I recommend my master's thesis that culminated in the publication of "Public Enemies? A perspective in the light of financial law", published by Editora Lumen Juris).
Let's go back to the questions asked.
For the first question, the answer is that, in my opinion, there is no impediment for the Brazilian State to tax income arising from non-legalized activities. That is, it would not need to legalize them to obtain revenue from them.
In this case, the old maxim that "money has no smell" (the infamous "non olet" principle) would apply, which implies the possibility of the Public Administration being able to obtain income from illicit activities, favoring an idea of equality. The logic is: if those who operate within the law must pay tax, those who are outside the law must also be taxed (so that there are no competitive advantages).
Of course, the discussion on the application of this maxim is large and fruitful. But, to cut a long way, our answer to the first question is positive.
Briefly shifting the debate, the question is: the legalization of such activities could bring about a qualitative discussion about (1) the form of authorization of activities; and (2) on the form of revenue that is intended to be imposed on the game in general. Hence the importance of discussing the matter in the Brazilian parliament.
Having answered the first question, let's move on to how to tax such activities (second question).
In our assessment, the Brazilian State, within the existing taxes in the legal system, would have the following possibilities:
A. Require Income Tax (IR) withheld at source on remittances abroad for betting purposes, as well as require exchange offices to present proof of withholding tax (or create an additional obligation for credit card operators);
B. Demand the payment of contributions to PIS and Cofins in remittances abroad, by creating an additional obligation;
C. Demand the payment of the Contribution for Intervention on the Economic Domain (Cide) in remittances abroad (taking advantage of the existing tax);
D. Require the payment of IOF on remittances abroad, using a higher rate, as well as require credit card operators to withhold the tax.
Taxation, however, involves some practical impossibilities.
First, because somehow the State would have to identify the nature of these activities. And I suspect that the alternative would be to classify them as a service, in line with what the Federal Supreme Court (STF) has already decided — which could generate the argument about a kind of tacit legalization of activities.
Second, because there is a dispersion of users to be taxed, which would make inspection by the Public Administration difficult in all cases.
Third, because in the case of alternative "a", in each operation it would be necessary to observe whether there is an international treaty, generating a burden on consumers (service borrowers) and exchange offices. In addition to the need to create an obligation (complex, inclusive) for credit card operators.
In view of this, it seems to us that the way forward would be to broaden the debate on the regularization of such activities in order to enable collection and control in Brazilian territory. If not, more interim measures will come, more complexity will be created, and — I suspect — revenue from such activities will still fall short.
And the discussion, as said, passes through parliament, where the matter is more advanced.
João Vitor Kanufre Xavier da Silveira
Partner of Galvão Villani, Navarro, Zangiácomo e Bardella Advogados, Master’s in Financial, Economic and Tax Law at USP and postgraduate in Tax Law at FGV in 2017.
Source: Revista Consultor Jurídico
