GMB – In light of the recent changes to the rules governing the betting sector in Brazil, is there a legal basis for companies that have already invested under the previous framework to claim a breach of legal certainty or legitimate expectation? Can these changes be challenged in court?
Witoldo Henrich Jr.: I remember a panel a few years ago, possibly before 2018 (when President Temer issued the provisional measure), with my friends Luiz Felipe Maia and Ricardo Magri. At the time, we were discussing the best model — whether it should be a concession, authorization, or some other legal vehicle to enable betting operations.
These are distinct models, but for the purposes of this question, we could say that a concession is a contract between the private sector and the government, with terms that bind both parties. Luiz Felipe argued that the concession model would be safer because the rules would be clearly established before the contract was signed. I, on the other hand, believed that an authorization would be more flexible and, since betting is heavily influenced by technology, this model would offer more agility for implementing necessary regulatory changes over time. The government seems to have followed this second path.
If they had followed the model defended by my friend, perhaps we wouldn’t be discussing this now—and in that sense, I must agree with Maia. A restricted concession process is indeed much more stable and predictable for the concessionaire.
In any case, I see a certain level of commitment by "Brazil" to the 12% tax rate. Let me explain: this revenue comes from the regular exercise of this specific activity and was introduced through the same legal vehicle that legalized betting in Brazil.
Operators applied to operate within a closed legal ecosystem delivered by “Brazil” to the private sector. I believe there is room to fight for maintaining the 12% if that scenario changes. It would be a completely different situation if the government were to increase PIS, COFINS, or corporate income tax (IRPJ) across the board for all taxpayers.
Could the legal uncertainty caused by frequent regulatory changes lead to lawsuits against the Brazilian State? Could foreign investors resort to international mechanisms?
Undoubtedly, these issues will end up in court. It's a shame. I’ve spent more than 10 years “selling” Brazil abroad alongside my industry colleagues, showcasing the country’s seriousness and business maturity. Then these strange actions, flip-flops, and rumors come along... they throw years of work away. I’m unsure if international mechanisms are viable, but I’m not ruling anything out. Everything is so crazy these days that nothing seems impossible.
If the government decides to increase the tax burden on betting again — say, to offset the reduction of the IOF — are there legal avenues for operators to challenge the increase?
As I mentioned before, operators “bought into” an ecosystem founded on laws 13.756 and 14.790. Changing the rules after collecting R$ 35 million (US$ 6.3m) from operators seems like a bad joke to me. I definitely see grounds for legal action in that case.
What legal mechanisms could be adopted to ensure greater predictability and regulatory stability for the sector? Would it be possible to propose to Congress the inclusion of transition clauses or specific safeguards for operators already active in the country?
Honestly, I think that if the government were willing to accept a transition, they would accept not changing anything at all. The current government doesn’t seem capable of scaling back. It’s a government desperate for revenue because it can’t balance its basic accounts. Unfortunately.
I’ve written and spoken about this many times at our events. The Workers’ Party (PT) has never been in favor of gambling. They decided to regulate it for the wrong reasons. They look at the industry and only see billions in revenue.
Could an unexpected tax hike affect commercial contracts already signed by operators, such as agreements with suppliers and sports clubs? What kind of contractual clauses could protect these relationships?
Absolutely. Of the contracts I’ve seen here at the office, many reference GGR minus 12%. If the 12% changes, everything changes.
Regarding sponsorship contracts—when we helped negotiate the first sponsorship agreements Luciana Hendrich brought to Brazil, with properties like Vasco, Fortaleza, Red Bull, Maracanã—they all had clauses protecting the operator from legislative changes. Nowadays, I’m not sure how that’s being handled, since we’ve stepped away from direct negotiations. I hope those protections are still in place.
And what about advertising and sponsorship contracts based on the previous legislation: is there legal ground for revision or termination due to the new restrictions?
In general, contracts include escape clauses for unforeseeable circumstances, force majeure, and government actions incompatible with the execution of the contract.
As I said, those early sponsorship contracts we were involved with had such provisions. At the time, there wasn’t much regulation, and it was essential to foresee possible state constraints on yet-unregulated betting. We’ll have to wait and see.
Source: Exclusive GMB
