The Federal Government, through the Ministry of Finance, edited a Provisional Measure (PM) that aims to regulate the sports betting market, establishing taxation at the level of 16% on the revenue obtained by companies that explore the sector.
The Provisional Measure also provides for the need to grant authorization for companies that wish to explore the referred betting modalities in the national territory.
However, even if the government intends to tax these betting vehicles, it should be noted that most companies and their respective operations are, in fact, headquartered abroad, only offering access to Brazilian consumers, who place their bets over the internet.
In this case, it appears that the much-desired taxation of these services by the Brazilian government will remain unfeasible in relation to most companies headquartered abroad, since the OECD Model Convention of 2000/2005 is applicable to the case.
Said convention guarantees, to taxpayers of its member countries, the non-taxation on income by another member country, respecting the legislation (and respective rates) applicable in the country of its headquarters.
Brazilian courts, including the Superior Court of Justice, have already decided on the extensive application of article 7 of the Convention, in order to exempt companies headquartered abroad from taxation on income earned in Brazil.
This brings the government a complication to the task established by the Minister of Finance when he informs that he will carry out the taxation of these companies, considering that, for the most part, those who exploit the bets made in the national territory are, in fact, headquartered in other countries, which guarantees, if applicable, the protection provided for in the Model Convention, to which Brazil is a signatory.
And, as if that were not enough, the judiciary has, repeatedly, decided on the validity of the application of the provision of article 7 of this Convention, through already consolidated decisions of the Superior Courts, such as, for example, the judgment of Resp nº 1.161.467/ RS, by the STJ, which even stated that international treaties, even those of a tax nature, are related to compliance with the Federal Constitution, that is, of valuation equivalent to constitutional norms.
In this understanding, there is no possibility for the Brazilian government, either by issuing a provisional measure, or by presenting a duly approved bill of law, to tax a large part of foreign companies, other than through a possible constitutional amendment.
And yet, it turns out that taxation on income directed exclusively to companies operating electronic sports betting cannot be accepted, since the discussion goes beyond this small spectrum of taxpayers, reaching the entire range of companies headquartered abroad and that make a profit in Brazil.
Such a measure, obviously, will cause Brazil to apply international sanctions, and may even culminate in its exclusion from the OECD, which deals with undeniable losses, from an economic point of view.
How do you avoid such an impediment?
The government has already informed that it will create a specific body with the Ministry of Finance for the accreditation of these companies, which will be responsible for monitoring the volume of bets and collection, as well as carrying out prior granting of authorization for said companies to operate.
This measure, among other objectives, certainly aims to prevent foreign companies from exploiting bets remotely, from another tax domicile, in order not to be taxed in Brazil, establishing the need for them to have domicile and legal representatives in the national territory.
This means that even large companies that explore the world betting market, such as, for example, International Game Technology, bet365 and GVC Holding, headquartered in the United Kingdom and Luxembourg (both members of the OECD) respectively, force themselves to have operational presence in Brazil, so that article 5 of the OECD Model Convention applies to them, and, in turn, they are, without impediments, directly taxed in Brazil.
This is also a way of controlling the legality of bets in accordance with Brazilian legislation, security for Brazilian consumers of services and a guarantee of fairness and equal competition, guaranteeing "parity of arms" with the giants of the world market.
However, this measure alone does not help new Brazilian companies that wish to explore the sector, so that they can be sure that unfair competition is not practiced by large foreign companies, which today dominate the market.
This is because the hegemony is already established, and the federal government can take advantage of this opportunity so that Brazilian companies and beginners, who wish to explore the market, have tax benefits in relation to foreign and already consolidated companies, in order to encourage new business, a source of employment and revenue.
Charles Nasrallah
Lawyer specializing in business law and partner at Nasrallah | Campanella & Souza Silva
Source: Estadão
