Last July 25th, the federal government stirred up the sports betting market with the edition of Provisional Measure (PM) 1,182/2023. Fixed odds sports betting - those in which the bettor knows, at the time of the bet, how much he can win if he is successful in the guess - were already legalized since 2018, with the advent of Law nº 13.756/18.
However, it was only last month that the market received, through a PM, the principle of what should be the regulation of the sector, which already moves billions of reales every year. The expectation, now, is that the PM nº 1.182/2023, if and when converted into law, will pave the way for a series of complementary norms, both the Ministry of Finance and other authorities, which discipline and guide the operation of bookmakers (the so-called "bets") in Brazil.
One of the most discussed topics, since the publication of the PM, has been the high tax burden imposed on operators. In addition to the combined rate of 18% on the revenue after deducting premiums paid, it is now also required that bets currently headquartered abroad establish business in Brazil, subjecting these operators to local taxation, which increases the total tax burden to the house of 40%.
On the other hand, another fundamental discussion, also related to the requirement that foreign operators establish themselves in Brazil, has been receiving less attention in the media. This is the fact that, currently, the revenue of a large part of the bets derives not only from sports betting, object of the PM, but also (and mainly) from products and services that, according to Brazilian legislation, constitute "games of chance", where winning or losing mostly depends on luck (bingo, virtual casino, roulette, etc.).
This type of game is still prohibited in Brazil, as it is still considered a criminal offence. However, virtual platforms located abroad, in jurisdictions where gambling is allowed, have been able to offer these services to Brazilians, as they are protected by the principle of territoriality, which is increasingly challenged in the era of the digital economy.
The question that hangs in the air, therefore, is how this business model will adapt to the possible formal arrival of bets in Brazil. Once with local headquarters, license and workforce, according to the current law, in Brazil, bookmakers will only be able to provide sports betting services.
In this context, it will be essential to understand how the Brazilian authorities will behave towards the industry. If they opt for a more restrictive strategy in relation to "gambling", they could create a perverse incentive, especially if they start to prevent bets licensed in Brazil from offering unregulated products to the Brazilian market, from platforms that are fully operated fom abroad.
Is it worth opening an operation in Brazil?
That's because they will end up forcing bookmakers to the following choice: license themselves in the country, to operate exclusively in the sports betting market, or abandon this segment and offer, from platforms located abroad, only "games of chance" to the Brazilian market. Both foreign operators and the Brazilian State seem to lose out with the second alternative, regardless of the rate adopted.
The federal government will need to evaluate legal and regulatory solutions that intelligently address the issue. For the time being, the solutions seem to vary between, on the one hand, allowing bets to have Brazilian and foreign domiciles to offer different types of products and services; and on the other hand, facing political and cultural barriers in order to expand the range of authorized games in national territory.
Together with the PM 1.182/2023, the federal government presented Bill nº 3.626/23, which deals, among other topics, with the sanctioning process applicable to sports betting houses, but which also does not address gambling. However, there are other initiatives, more or less controversial, that are being processed by the National Congress and deal with the legalization of gambling.
Everything indicates that the topic, far from being exhausted, will still be the subject of much debate among public authorities. The market hopes that the technical debate will allow political forces to find intermediate solutions that guarantee legal certainty, protect consumers, expand tax collection, but also contribute to the development of the sector in the country.
Natalia Lugero de Almeida, André Santa Ritta and Miguel Arraes
Partner and associates at Pinheiro Neto Advogados
