Historically considered an illegal practice, sports betting began to be legalized in 2018 through Law 13.756/2018, however, it did not succeed in the country, especially due to tax issues, which strangled the operators' margins. This, in part, was revised by Law 14.183/2021, which has just been sanctioned by the President of the Republic. The question is whether the measures taken will be sufficient.
Popularly known as sports betting, fixed-odds bets are those in which the bettor tries to predict the outcome of real sporting events (such as, score, number of cards, who will score the first goal, etc.) on sporting events, knowing in advance how much he can earn in case of a hit.
Unlike conventional lotteries, in fixed-odds betting, the player knows, at the time of placing the bet, how much he can win in the event of a hit, based on a multiplier of the bet amount (the fixed-odds), previously defined by the value bet.
Law 13,756/2018, in providing for the destination of the proceeds from the collection of fixed-quote lotteries, in its article 30 distinguishes bets made in physical media from those made in digital media.
In bets placed on physical media, it was stipulated that at least 80% of the amount collected should return to the bettors in the form of payment of prizes and Income Tax levied on these amounts.
In addition, 0.5% of the amount collected was earmarked for social security; 1% for public school units in early childhood education, elementary school and high school that reach certain targets established by the Ministry of Education; 2.5% for the National Public Security Fund (FNSP); 2% for football clubs that ceded the rights to use their names, brands and symbols for the dissemination and execution of the fixed-quote betting lottery, leaving a maximum of 14% to cover the agent's cost and maintenance expenses fixed odds betting lottery operator.
In this way, fixed-quote betting operators carried out in physical environment had only 14% of the total amount collected to remunerate their activity, and the costs of the operation should also be deducted from this amount, which significantly reduced the profit margin the business, often making it unfeasible.
In fixed-odds betting in virtual media, the margin of operators was even more restricted. Of the total collected from the bets, 89% should be allocated to the players, either in the form of prizes or by withholding the tax owed by them. As in the case of physical bets, percentages of the prize should be allocated to social security (0.25%); to public school units (0.75%); for the FNSP (1%) and for the football clubs (1%), leaving only 8% to fund the operator's activity and its profit margin.
Revenues destined for operators still suffered a serious aggravation. Mistakenly inspired by the conventional lottery, the legislator predicted that all the percentages indicated above - whether in the context of physical or virtual bets - should fall on the gross value of the bets (turnover), that is, on the total moved, which significantly reduced the investor's return.
The mistake made by legislators when originally drafting Law 13.756/2018 was due to the lack of understanding that the fixed-odd lottery is a type of betting related to the results of sporting events, in which it is defined, at the time of execution of the bet, how much can be won in case of a hit. The prize is linked to the value of the bet and not, as in the conventional lottery, to the value of the proceeds from the collection.
Numbers don't lie. Fixed-odds betting operators experienced a unique situation. On the one hand, they saw their activity – which for decades was relegated to illegality – finally authorized and recognized as a lawful practice. And on the other, due to the severe margins of return imposed by Law 13,756/2018, they experienced prohibitive situations, which prevented the proper development of the activity in Brazil.
The Brazilian legislator achieved a feat: at the same time that he allowed the practice of sports betting in the country, he banned it. And all this within the scope of a single law, Law 13.756/2018.
In view of the harsh criticism that the legislation suffered, the National Congress proposed amendments to Law 13.756/2018, through Provisional Measure 1.034/2021, later converted into Law 14.183/2021.
The aforementioned law, when dealing with fixed-odd betting, initially modified the calculation basis on which the charges fall. It no longer adopts the calculation based on the total value of the bets (turnover) for all charges, and, for most of them, started to do it based on the operator's gross revenue (GGR), which is the result of the total wagered minus the prizes paid, ie the net prize received by the operator.
This subtle change was decisive for the business. The amendment brought by Law 14,183/2021 establishes that, from the total collected (turnover), the premiums will first come out, without setting the amount and value of the Income Tax, whose rate in this modality is 30%, and the portion allocated to Insurance Social, which will be 0.10% for bets in physical media and 0.05% for bets made in virtual media.
Once these discounts are made on the total of bets, in a second moment, on the amount that remains after the first distribution (GGR), there will be an allocation of 0.82% to public school units; 2.55% for the FNSP; 1.63% for football clubs and 95% for sports betting operators.
With this, there is a change not only in relation to the calculation basis - which is no longer based on the total collected (turnover), and now largely incorporates the GGR - as well as the percentage allocated to the operator, previously limited to 14% in physical opposites and 8% in virtual ones, and now it is up to 95%.
The proposal sent to presidential sanction also made it clear that the amount destined for the payment of prizes and the collection of the Income Tax levied on the prize should not be part of the calculation basis of the contributions levied on payroll (social security), revenue (PIS/ COFINS) and profit (CSLL) owed by the operating agents, insofar as they are not their revenues, but those of the bettors (prize) and the Federal Government (tax).
At this point, unfortunately, Law 14.183/2021 advanced less than it could, as the President of the Republic, on the grounds that the measure would generate legal uncertainty, by sanctioning it, vetoed §5, which would be added to article 30 of Law 13.756 /2018 and brought precisely this provision, contrary to recent statements by the Supreme Court on the subject.
Finally, the changes in the Brazilian fixed-quote betting legislation, although punctual, were decisive and should definitely contribute to the betting industry in Brazil. We cannot kid ourselves, there are still important impasses regarding the taxation of bets that need to be resolved.
The form of calculation of social contributions provided for in article 195 of the Federal Constitution is one of them. However, the biggest concerns are related to the moment of taxation of prizes. Our legislation continues to determine the incidence of Income Tax on the date of distribution of the prizes, without taking into account the fact that the bettor, especially the professional, has the habit of reapplying the value of the prize in new bets and not redeeming it immediately. This fact means that a bettor can, in the same day, win a prize and, subsequently, lose it completely, currently having to tax an amount that he did not take home.
Anyway, this is a point that we hope will be resolved by the Executive Branch at the time of regulation of Law 13.756/2018. Now, we have to wait and see if the adjustments proposed by Law 14.183/2021 will effectively boost the betting market in Brazil, or if we still need more corrections.
RAFAEL MARCHETTI MARCONDES
Consultant at Pinheiro Neto Advogados, Professor of Sports and Tax Law, Doctor and Master in Tax Law from PUC/SP and MBA in Sports Management from ISDE/FC Barcelona.