As widely publicized last week, the Minister of Finance presented the project for the new Fiscal Framework, with a special focus on social reparation in Brazil. To this end, the fiscal policy promises, among other measures, to carry out a review of tax expenditures and taxation of sectors currently not taxed, such as electronic betting.
Historically, the taxation of betting has been the subject of discussions in Brazil since the 1950s, when the Extraordinary Appeal 25,531-São Paulo was judged by the Federal Supreme Court. The object of the lawsuit was a tax foreclosure filed by the Municipality of Santos against the Jockey Club of São Vicente, for the collection of the then tax on industries and professions, on bets on horse races that took place outside the race venues permitted by law.
The understanding of the STF was that: "The taxpayer cannot evade the payment of taxes on the grounds that their activity is illegal. Bookmakers maintained by racing societies outside the location of their headquarters. Public service is not considered."
In 1980, the issue returned to the STF agenda through extraordinary appeal 74.849-1-São Paulo. It was a new tax foreclosure brought, once again, by the Municipality of Santos against the Jockey Club of S. Vicente. However, in this case, the charging of ISS on tickets and also on the income from bets obtained by the racecourses was discussed.
At the time, the Municipality of Santos charged ISS not on the bettors' entry ticket, but on the net result of the bets, that is, the rate of 10% on 31% of the bets, a percentage that remained with the Jockey Club de São Vicente, once the prizes and winning bets have been paid.
The STF understood that the Municipality, by taxing part of the proceeds from betting on horse racing, invaded the competence of the Union and, for this reason, judged "legitimate the collection of ISS on tickets sold to race track visitors, however, and illegitimate the intention of the municipality to tax the income from betting or earnings of the companies that maintain the racecourses, as this is within the tax jurisdiction of the Union."
In the same sense, in a recent judgment in General Repercussion, Theme 700, the STF judged the extraordinary appeal 634.764 - Rio de Janeiro, on the collection of ISS by the Municipality of Rio de Janeiro to the Brazilian Jockey Club, where it was discussed whether the base calculation of the tax should include the full value of the bet or fall only on the value of the tickets or tickets or on another taxable basis.
The STF decided for the constitutionality of levying the ISS solely on the exploitation of betting activities, considering that the calculation basis should be the amount to be remunerated for the provision of the service, its taxation on the total value of the bet being unconstitutional.
Thus, if, on the one hand, the position of the Federal Supreme Court in the sense that the incidence of ISS on betting activities is legitimate, but provided that it does not go beyond its competence, that is, the calculation basis must be limited to the value of the tickets. On the other hand, what has historically been verified is the incessant attempt by the municipalities to take advantage of the inertia of the Union, to tax the product of the bets.
Currently, with technological advances, discussions on the taxation of asset accrual have migrated from concrete cases of horse races held outside the authorized racecourses in the 1950s, to the taxation of gains arising from bets made outside the physical territory, that is , in the virtual/online universe.
It is in this economic-tax context that, according to the Ministry of Finance, the Union will finally make use of this collection, however, it did not inform how taxation on virtual bets will take place.
Indeed, the Federal Constitution provides for the normative competence of the Union to institute residual taxes, in arts. 153, item III, and 154, item I. However, in discussions on the subject, tax specialists have bet that the Government will aim at taxation by the Income Tax of gamblers, since many virtual betting companies are not even located in the country. Brazil and the vast majority are residents of tax havens.
This is because, pursuant to art. 43 of the National Tax Code, the tax, under the jurisdiction of the Union, on income and proceeds of any nature has as its generating event the acquisition of economic or legal availability of income, thus understood as the product of capital. In this context, the spatial criterion of the taxable event for individual income tax refers to the national territory, levied on income or provisions earned by residents and non-residents in the country and abroad by a person resident and domiciled in Brazil.
The device also clarifies that the incidence of the tax does not depend on the name of the revenue or income, the location, legal condition or nationality of the source, origin and form of perception.
In addition, art. 14 of Law 4.506/64 determines that profits arising from cash prizes obtained in lotteries, even those with an assistential purpose, including those exploited directly by the State, are subject to a tax of 30% (thirty percent), subject to a discount at the paying source, sporting contests in general, including horse racing and raffles of any kind, excluding advances on capitalization bonds and amortization and redemption of shares in corporations.
However, in an analysis of a specific case, the Federal Revenue Service of Brazil manifested itself, in the Consultation Solution 61 Cosit, of March 29, 2018, to determine that the income received from abroad by an individual resident in Brazil, arising from gains online bets are subject to taxation in the form of a mandatory monthly payment (carnê-lion), in the month of receipt, calculated using the monthly progressive table in force in the month of receipt and collected until the last business day of the month following the receipt of income, with no legal provision for deduction, in calculating the calculation basis of the monthly carnê-lion, of any losses on bets made; and shall form part of the tax calculation base in the Annual Adjustment Declaration (DAA), with the tax paid as a carnê-lion being considered an anticipation of the calculation in this declaration.
Thus, regardless of technological advances or the location from which equity increases arise, these, as a rule, must be declared and offered for taxation, unless otherwise provided in current legislation.
So much so that the recent law 14,115, of September 22, 2022, amended law 13,752/18, to determine that the proceeds from the collection of the lottery of fixed quota bets in physical or virtual means, unless otherwise provided for in a specific law, must be used to pay the income tax levied on the prize.
In practice, regardless of the way in which the Union will tax these actions, the great challenge for the Federal Revenue Service of Brazil will be to supervise the equity increases arising from virtual bets.
It is undeniable that, even before the creation of operations in the Metaverse, there were difficulties faced by the tax authorities to supervise operations not declared by taxpayers facing not only local technological issues, but also international ones.
Under the terms of the Annual Inspection Report released in 2022 by the Federal Revenue Service of Brazil, one of the focuses of 2022 was the development of new tools for identifying tax evasion, aiming to identify structured tax offenses, which use practices carried out outside the territory national, or even outside the national financial system, with massive crossings to locate taxpayers who have assets located abroad, and not declared to the Brazilian Tax Authorities.
According to the Secretariat of the Federal Revenue of Brazil, based on the aforementioned intersections, the taxpayer selection area identified concrete cases in 2021 for inspection in 2022. However, even if certain taxpayers are identified, it is certainly a tiny number close to thousands of gamblers tax residents in Brazil who, currently, see in betting a field of asset growth free of taxation.
In this way, despite the efforts of the Federal Revenue Service of Brazil, the taxation of virtual bets intended by the Ministry of Finance, regardless of the form in which it occurs, will face major obstacles, technological, in its implementation and, mainly, in its inspection by the tax authorities.
Cristina Mancebo Camara
Lawyer graduated in Law at Cândido Mendes University. Specialist in Tax Law. Master's student in Tax Law at Cândido Mendes University. Partner at the SiqueiraCastro office. Member of the Tax Committee of the France-Brazil Chamber of Commerce and of the Tax Committee of the Brazilian Association of Lawyers - ABA.
Source: Migalhas
