iGaming Daily

Fernando Noodt (00:03.266)
Tell me doctor, where are we going this time? Is this the 50s or 1999? Well I guess it's 2018 with the Brazilian government seemingly trying to collect retroactive taxes for the iGaming and sports betting industry, a subject we will take you through and we promise we'll get you back in time. I'm Fernando Nott, senior journalist for SBC Noticias and your host for today's episode of iGaming Daily.

In this time travel adventure, am joined today by SBC Noticias Brasil editor Ricardo Cis. Ricardo, how are you today?

Ricardo Assis (00:37.719)
Hello there, really happy to be here to talk about another important issue happening in Brazil. Nothing stays the same here.

Fernando Noodt (00:47.02)
Yeah, it's an ever-changing landscape for Brazilian operators. And to speak about it is also with us business journalist for SBC Noticias Brasil as well, Ana Maria Menezes. Ana, how are you today?

Ana Maria Menezes (01:02.435)
guys, everything's well. Pretty excited to talk about today's topics. I think it's gonna be a hard topic, but at the same time, it's a very important one. So, pretty excited.

Fernando Noodt (01:14.942)
Yeah, it's a very big topic and we couldn't be discussing this topic if it weren't for our good friends of OptiMove, the number one C- solution for the iGaming market and sponsor of iGaming Daily. As a special offer, OptiMove are offering new clients a free first month when they buy OptiMove. For more information and clean the free month, go to optiMove.com slash SBC and you will also of course find the links down in the podcast episode description. But let's go.

back in this case to the subject we're going to discuss not back in time but the subject kind of takes us back in time because the price and betting secretariat issued an ordinance last week that sparked a major conflict in the gaming industry and now everyone is worried that they might have to pay taxes about five years of taxes but from the past so Ricardo why don't you explain us what this whole thing is about

Ricardo Assis (02:15.212)
soul.

Fernando Noodt (02:21.388)
Really, I don't think it was me.

Ana Maria Menezes (02:22.691)
I turned mine off, the WhatsApp one.

Ricardo Assis (02:26.101)
Yeah, let me see if it was my wife because she's in front of me. Maybe it was her cell phone. Can you take the... Sorry, it was her computer. She's right in front of me and I didn't realize. Sorry.

Fernando Noodt (02:35.342)
Thanks for

Ricardo Assis (02:49.985)
Can I answer now? Yeah? Okay. So, last week the Ministry of Finance, together with the Federal Revenue, published the Law Ordinance No. 3, which created the Intersecretarial Working Group, now known as the GTI Bats. It has the duty of monitor the behavior of the online gaming and sports betting sector in relation to tax compliancy and maintenance of the requirements

Fernando Noodt (02:51.851)
Yeah, you go ahead.

Ricardo Assis (03:18.593)
for authorization of authorized legal entities. But the point that caught our attention, however, it's in the item two of the article first, which states that one of the working group's duties is to support the proposal of a compliance program for regularization of tax obligations in relation to the period prior to authorizations. So this raises the questions. Will...

retroactive taxes be charged on licensed operators? And to know about this more, we've talked with some lawyers that have different opinions in this regard.

Fernando Noodt (04:00.556)
Yeah, we'll get to that in a second. Ana, why don't you, Ricardo just mentioned the GTI, no? GTI BETs or GTI BETs, which is the intersecretariat working group. So why don't you tell us what this whole group is and since it was created with this ordinance, why don't you take us through what that is?

Ana Maria Menezes (04:08.291)
Mm-hmm.

Ana Maria Menezes (04:25.237)
Okay, so first of all, it was created by the Federal Revenue Service and also the Secretariat of Prices and Betting Ministry of Finance, so SPA as we call it. So the GTI or GTI Bets, it's a group that we basically monitor the online betting and game marketing in general. So basically their goal is to ensure that authorized companies are up to date with their taxes, also to identify legal operators, which is a very important deal for us.

It's a topic that has been discussed a lot. So how to prevent illegal operators from working when they can just change their IPs and et cetera. It's been a problem that.

the ministry has been trying to fight against. And also money laundering is also a target for them. So in addition to that, the GTI will basically suggest a program to help companies to regularize their taxes and propose actions as well to strengthen enforcement.

So they plan to create a specifically dedicated channel for secure and legal information, also sharing between agencies. So it's something that aims to help the whole sector, not only a few specific companies. And they have six months to complete all of tasks.

but the deadline can still be extended. So it's a pilot project. So they're still trying to figure out how it goes. And during all this time, this six month period, they can submit reports. Not only they can, they have to submit reports every two months and a final report once everything is wrapped up. So it's sort of like an account to just say to the people what is happening, what they were able to find to justify actually the creation of this project. So yeah, I think that sums up.

Fernando Noodt (06:16.398)
Okay, so, we got a bit sidetracked here because the main issue with this ordinance is that it potentially sets the retroactive tax requirement. And Ricardo, like you said, you talked with two industry lawyers about the whole situation. So what was the reaction and what was their opinion on this apparent requirement?

Ana Maria Menezes (06:26.595)
Mm-hmm.

Ricardo Assis (06:42.231)
So, I've talked with Felipe Rodriguez, that specialized lawyer and CEO of Jogo Positivo, and he said that the joint ordinance does not state whether the tax obligations in relation to the period prior of the authorization are primary or accessory. And in his understanding, there is no best principal tax obligation. And in his understanding, this would be an abuse of state power, because they cannot

they can only collect taxes when there's an express legal provision to do so. This means that, sorry, this means that no tax can be demanded without a law establishing it. So in his understanding, there is no possibility, at least by now, because everything can change with an understanding of the Supreme Court. Sorry, there is someone doing...

Is it able to hear or?

Fernando Noodt (07:45.133)
Yeah, I can hear it.

Ricardo Assis (07:46.603)
Yeah, sorry, it's because there's someone doing something up there. I'll keep going. Just a second. Let me see where I stopped it. So in his vision, it's unconstitutional to ask for retroactive taxes without having anything established before. But this can change with an understanding of the Supreme Court.

And also I speak with Andrea Ueda, who is associate of Amig. And for her, let me just, sorry. And I also speak with Andrea Ueda, associate of Amig. And for her, this proposal is not a surprise, at least for the operators that participated in conversations with member of the Ministry of Finance since the beginning of 2023.

because she said that this topic has been raised in face-to-face meeting with members of the association. So this is something that people that are involved since the beginning already knew that was a possibility of happening. This is something that we have to now know, now wait and see what's going to happen because the Supreme Court has ruled that retroactive taxes are constitutional. But in this ruling,

it's something that is, according to Rodrigues, different because there was no taxable event for online betting activities, at least from 2018 to 2023. So it was simply not known how much the taxpayer would pay in taxes. So in his view, any other understanding would be inconstitutional, even with this decision by the Supreme Court. But also, with talking about this situation, said that...

In her vision and the vision of other people's discussions, the government may look into the pockets of the badgers, because they may look to gather money from taxes of the gains of people during this period. So this may be something that goes...

Ricardo Assis (10:02.323)
even from the operators and also for the players to have to pay. So, I don't know yet what this is going to have... Sorry, I don't know yet where this is going to lead us and what's going to happen, but we have to wait and see if there is an understanding by the Supreme Court because I think a few operators may raise a concern with this situation because this is something that wasn't...

wasn't stated before, even though they discussed it in face-to-face meetings. So, I, for one, cannot say what's going to happen because I have no idea at this point. I think the Supreme Court can do whatever they want here in Brazil. So, if they have an understanding that differs from what the industry expects, they can just make a statement and this all will have to be legal.

Fernando Noodt (11:01.762)
Yeah, I think the prime problem the government is going to have is creating a nuclear reaction enough to generate the 1.21 gigawatts necessary to go back to 2018 and enforce these taxes. But seriously speaking, I think that this thing Rodriguez said that we didn't know what taxes.

government was going to enforce back in 2018. So it would probably be on the illegal side to actually try and collect retroactive taxes. So I think that's a very logical argument there by lawyer Rodriguez. But I'm thinking that being that the whole gaming industry has gone very legal. They have been several

actions filed of all natures. So do you think there are going to be any actions filed by industry operators should the government move forward and say, hey, you have to pay taxes retroactively from 2018 onwards?

Ricardo Assis (12:14.711)
I think it all depends on the amount of taxes that are due. I think they will have to wait and see how they will calculate it, how much money will they ask for from the operators. They, like we like to say here, we have to wait and see because it's only the beginning. The study group hasn't even started yet. So we have to wait and see how much money will they ask.

how the reaction will be, but I think there is a big chance of some operators to raise questions about it because this is something that wasn't... wasn't... how can I put it? They knew that was... that there were discussions about this, but this wasn't something that was written in the law. This is something new. So they may raise questions because of this.

Ana Maria Menezes (13:12.451)
And not only that, to be honest, but I think there is also this, of course this is a natural movement, but there's also the natural movement of the number of sports books just getting a bit lower and lower over the years. So André Guelphi, he's the director president of the Brazilian Institute of Responsible Gambling. And he actually said that in five years,

he's expecting the number of sports books here in Brazil to just drop in half so there's already this prediction coming by what this to be honest is how at least I see it is this text Retroactive Texas can

maybe speed this process along because it is a lot of money and we have to think about the planning that these sportsbooks have throughout the whole year so it's all prepared beforehand and this comes in a way of just okay so we need to get even more money the federal license is already pretty it's a pretty huge amount of money companies needed to you know to gather that amount in

let's say not that much time, we didn't have that much time to gather all that. So I think there are implications, but at the same time, the market is already going in the direction that, for example, Guelph had already predicted. And so there's also that we need to separate what is actually coming from the taxes and what is coming from the natural direction of the market. So I think that's really important as well.

Ricardo Assis (14:42.699)
Yeah, and in my vision this decision may hurt even more the smaller, the smaller bettors because the biggest ones they have revenues from other countries, they have revenues from other entities for, sorry, they have revenues from other countries, they have bigger pockets so they can pay it in a more fashionable way. I think if this go through,

Ana Maria Menezes (14:48.609)
Yes.

Ricardo Assis (15:09.591)
it will affect a lot of the minor bettors and it may even... How can I put it? can even... I don't know if... I don't think... Sorry. I don't know if it is safe to say that, but I think some of them can even maybe run out of business because of a decision like that, depending on the amount of money that the government...

desirous to have to pay back, it can be something that they don't have. I don't know. It's something that may be huge in that sense.

Fernando Noodt (15:48.704)
It's a very interesting topic, given this whole change to the law, because it creates some juridical instability or uncertainty for international companies. And like Ana said, like quoting Guelphi, companies are going to start like...

going away, like some companies are going to disappear and others are going to grow even more. And of course, this has been a topic discussed in last year's SBC Summit Rio. Remember, we have SBC Summit Rio 2025 coming up on February, late in February. So make sure to be there so you don't miss any of these conversations. But I was saying that this was a big conversation last year.

saying with people saying, hey, there's going to be a lot of M &A, a lot of acquisitions, big companies are going to come into the country and say, hey, I want to buy your operation. Yes, yes, yes, it might accelerate the process, but at the same time, it might have

Ricardo Assis (16:49.985)
This will for sure accelerate the process. Yeah, this will for sure.

Fernando Noodt (17:00.544)
operators scratching their heads and saying, hey, what happens if I go and buy this company? And all of a sudden the government says, hey, you had to pay taxes because you visited Sao Paulo back in 2014 and you didn't pay for your coffee at the hotel buffet. And they're going to go, what? And of course, in Latin America, things tend to happen from one day to the next and from one government to the next.

Ana Maria Menezes (17:10.604)
Yeah.

Yeah.

Ana Maria Menezes (17:21.016)
you

Ana Maria Menezes (17:28.131)
Thank you.

Fernando Noodt (17:29.966)
So I think this is going to be a very delicate issue in terms of the international investment that is expected to come into Brazil, which is set to become the third largest iGaming and sports betting market in the world. So we need to be very, very on top of this topic. And if you want to be up to date with all this information, make sure you subscribe to SBC News at Brazil newsletter so you can read it.

Ana Maria Menezes (17:34.306)
Definitely.

Fernando Noodt (17:59.15)
first hand from our business journalists, specialist business journalists based in Brazil directly from the source. And of course, if you want to read it in Spanish, you can also do that by subscribing to the SBC Noticias newsletter. And of course, make sure to subscribe to all the SBC media newsletters that cover all the other countries in the iGaming industry. Yes, yes.

Ricardo Assis (18:19.241)
It's also in English if you guys want it. You can see the articles in English in the SBC News as well.

Fernando Noodt (18:26.218)
Yeah, we will leave the links down in the description so you can read all about it in detail. But we are already halfway through January and the new industry like landscape is in full force. We are already seeing companies licensed by the government. Even though they had the provisional license, we always go through this debate. Is this the regulated market or the previous one was already regulated? Yes. But you know what I mean.

The market from January 1st is a different thing. So we're already in full force, but there is still a major issue around liturgy. We did an episode about liturgy last week, I think, if I'm not mistaken. I don't know what year is it anymore. All this time traveling has made me crazy, but it's now under fire liturgy, which is the lottery of the state of Rio de Janeiro is under fire from the Supreme Court.

Ana Maria Menezes (19:01.933)
Yes.

Ana Maria Menezes (19:09.485)
you

Ana Maria Menezes (19:18.275)
Yes.

Yes, it is. So the Loterge case has a lot of updates. Every single day we have a new topic coming up about it. But the latest topic actually was that Loterge has appealed the decision by André Mendonça. So he's the Supreme Court minister. And they said that they cannot comply with the ruling of shutting down the companies that are...

using the state license to operate nationally. So this is actually what Mnansah's decision

had to say in the first place, so they suspended lottery and electronic game activities outside of Rio de Janeiro by companies licensed by Loteji. So this is the last update that we had. And he also mandated the ring statement of geolocation mechanisms actually for better control. So Loteji had five days to make all these changes. And they actually said that they couldn't do it. So this is one of the latest reports.

we have, so the data expired on Friday, so on the 10th, and they said, yeah, we cannot do it. They claim actually that they lack the systems and equipment necessary to monitor geolocation data in real time, and that developing and integrating these technologies will take time. So what they said, they didn't comply with the ordinance.

Ana Maria Menezes (20:48.555)
on the day that they had to. And they actually said that another issue is that many clients' smartphones and devices are capable of accurately transmitting location data.

Besides that, the cost of implementing such systems is very high and it actually exceeds the short-term financial capacity of some companies. So this is what Letesh said regarding why they didn't do it. And they also requested the Supreme Court the extended guideline of 180 days. So this is what they believe it will take to that is a reasonable time frame to comply with the ruling.

And not only that, but the president, husband Clever, he actually went online, he wrote an article criticizing the decision and say that he creates an unhospital environment.

for companies here, for licensed companies in Brazil. And this is something that he used some strong words to be honest. He mentioned as well that he said that the government is basically prioritizing companies that are illegal. He mentioned Chinese companies as well.

putting them immune to the Brazilian law and actually harming companies that are licensed and that are trying to do the right thing. And I say the right thing with some comments because it's his opinion. So we have to take that into consideration as well. But yeah, so he posted online and it was a pretty direct statement of his opinion.

Ana Maria Menezes (22:23.939)
Yeah, that's that's the latest the latest update that we have. It's a pretty It's becoming a bit more and when I say aggressive I mean the tone is becoming a bit more direct a bit more, you know, just like stepping my foot down So we need to wait and see what's coming out of that But yeah, so this is the latest update that we have. Let's wait and see. We're probably gonna have some more news tomorrow, baby So yeah

Fernando Noodt (22:50.194)
Yeah, a lot of wait and see for Brazil, but you can wait to see what comes in SBC News Brazil newsletter. So make sure you subscribe to that and keep up to date with the Loterge case as well. But that has been all for today. You can jump on the DeLorean and go back through the stories of the previous day so you can get the whole picture of what we have just discussed. Thank you Ana Maria, Ricardo. Thank you very much, Ana Maria MacDonald for producing this episode.

Ana Maria Menezes (22:53.878)
Yes.

Ana Maria Menezes (22:58.923)
Exactly.

Fernando Noodt (23:19.744)
and to all our listeners out there, we'll catch you in the next one. Goodbye.

Ricardo Assis (23:27.638)
Thank

Ana Maria Menezes (23:28.067)
you