Brazil launched its regulated betting market on 1 January, with over five years passing between the National Congress first approving legislation for online gambling in November 2018 and the Chamber of Deputies giving it the final green light in December 2023.
During those five years, many operators opted to offer bets in the grey market, leading to a proliferation of betting sites. It has previously been suggested that Brazil had the most access to gambling sites of any global market during that time.
Despite the legal market having now launched, the government is still deciding whether to pursue the taxes that would have been paid during the grey market in Brazil.
In Tuesday’s (11 March) meeting of the Parliamentary Inquiry Commission (CPI) on betting, its rapporteur Soraya Thronicke requested the opinion of RFB chief Barreirinhas on back taxes for activities prior to regulation.
In response, Barreirinhas suggested he agreed with retrospective taxes on the grey market, although he conceded there would be some “operational difficulty” in collecting such contributions.
“It is not impossible to overcome, but it may require legislative changes,” Barreirinhas replied. “The Federal Revenue Service understands that Brazil can only charge tax on an operation if there is some material presence here.
“If it were not fraud and the company was actually abroad, and had no presence in Brazil, there would be doubt as to whether this taxation is possible or not.”
Proof of an existing operation in Brazil
Senator Marcos Rogério supported Barreirinhas’ view that companies should be taxed retrospectively on the profits they gathered during the “gap” of five to six years between first approval and regulation.
Rogério requested clarification on whether the RFB conducts cross-referencing on data related to payment methods.
Barreirinhas explained the RFB does indeed cross-reference data to identify inconsistencies in financial declarations, although this process encounters some issues especially, in the practicality of monitoring such a vast number of people.
“Inspection focuses on who needs to be inspected, so as not to disturb those who should be left alone,” Barreirinhas said. “And how do we select the target of this inspection? By looking for inconsistencies in the data presented.”
In early January the RFB announced it had formed a working group alongside the regulator, the Secretariat of Prizes and Bets (SPA), to ensure the sector satisfies its tax requirements.
The working group’s formation followed a November 2024 ordinance which established the process for migrating data and funds to the regulated market.
Luiz Felipe Maia, founder partner of Brazilian law firm Maia Yoshiyasu Advogados, strongly opposed the ordinance.
“The reason why I was so strongly against it was because it creates evidence of an ongoing operation,” Felipe Maia declared on a Vixio webinar in January. “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.”
The Brazil government’s right to retrospective taxes
The discourse over back taxes in Brazil will cause some operators concern over just how much their previous grey market operations will cost them in tax.
Other operators, such as Hard Rock International, held off from operating in the grey market, maintaining a longer-term outlook and meaning they don’t have to worry about retrospective taxes.
Alex Pariente, corporate senior vice president of casino and hotel operations at Hard Rock International, says the company has deliberately waited to ensure they knew the exact regulations they would experience in Brazil, agreeing the government has the right to pursue back taxes.
However, Pariente also feels the Brazilian government must be fair, taking into account the fact that companies did not know the full tax contributions they would be required to pay during the grey market.
“There were a lot of people that continued to operate,” Pariente tells iGB. “The government has all the right to look back and to say, ‘OK, well, there’s an economic aspect that has not been satisfied with the government’.
“But the thing is it has to be a parameter, right? Because whoever was operating during that period, maybe they weren’t as formal as companies today are because they’re complying with every aspect of the law.”
Original article: https://igamingbusiness.com/legal-compliance/brazil-retrospective-taxes-grey-market/
