Brazil has always been a focus for mergers and acquisitions. Now, with the opening of the market, M&A activity is on the rise, with many recognizing the vital need to build early relationships in their initial strategies to enter the market. But what other factors shape these decisions for international operators?

This Regulator Panel delves deeply into the legal, financial, and regulatory considerations that make this process complex.

The speakers of the Conference were:

José Francisco Manssur, Former Special Advisor to the Executive Secretary and ex Ministry of Finance of Brazil

Martin Lycka, SVP for American Regulatory Affairs and Responsible Gambling. Entain

Rafael Marchetti Marcondes, Chief Legal Officer. Rei do Pitaco

Luiz Felipe Maia, Partner at Maia Yoshiyasu Advogados

Tiago Gomes was the Moderator of the Panel. SocioAmbiel Avogados

José Francisco Manssur, former advisor to the Ministry of Finance and responsible for leading the regulatory process in the Federal Government, began by thanking his colleagues who made it possible for the regulation of sports online gambling and betting to be sanctioned under law 14.790/2023.

“In December 2023 it was the last working day of the Congress and of the year. I want to highlight the work of Rafael Marchetti, and Tiago Gómez. They moved from office to office knocking on every door. On December 22nd at 1am the chamber approved the law that regulates the online gambling”, started saying Manssur.

Process of the regulation in the Brazilian Market

Tiago, the mediator, broke the ice by asking the following question to Martín Lycka: From your experience, how can you compare the Brazilian process of regulating the market with other successful markets?

Martin Lycka: “I say that each country is different and specific. However, the efforts that have been made in the last 8 or 12 months were phenomenal. And that started in 2018 at the end of the Temer administration. For three and a half years, almost nothing happens. By the end of 2022 everybody was hopeful that former president Jair Bolsonaro was finally signing the provisional measure but, instead he decided not to sign it”.

“It was until May 2023 that something happened. We were expecting a law to regulate bets. And by December 30th we were finally able to produce a law hat was going to regulate the online gambling market.”

Finaly Martin added: “the operators that are interest, once they get the license, they get access to a country that loves sports, to a country of 60 million people crazy for sports and that they also like betting and playing games, so, congratulations Brazil!”.

Brazilian Shareholders: a controversial aspect of the law

As soon as Tiago Gomez, asked: How do you see the requirement of Brazilian Shareholders? , the debate began.

Rafael Marchetti took the lead and answered based on his experience; he said it is a receptive law, but that it has a few gaps, as natural. So, he started analyzing it from a lawyer and operational standpoint. “From the intro/extra-legal perspective in what an ordinance can define, my interpretation is that when the law refers to Brazilian shareholder, Brazilians are defined by either somebody that is natural from Brazil or naturalized.” Marchetti stated his point of view on this matter: “To me they are talking about individuals, so the ordinance would not be able to overcome this legal obstacle, when it comes to litigation or other aspect.”

Felipe Maia: “I agree with what you said about the constitution”, commented Luis Felipe. “I think that the legal technical argument to say that this rule is unconstitutional is strong. So, lets talk about the definition of Brazilian. The law does not talk about Brazilians but Brazilians shareholders. The core of the regulator lye in the word “shareholder”, not in the word Brazilians.

"They don´t talk about Brazilians individuals, or individuals born in Brazil, or Individual Brazilian shareholders, the talk about Brazilians shareholders”, he explained, and then added: “so the business headquarter in Brazil is a Brazilian shareholder.

Continuing with the debate, Rafael, wanted to add some more thoughts on his point of view in this topic: “What I think is that there are different interpretations, from a practical standpoint. This situation is kind of different. Because we are requiring that our partnerships exists and also there is an operating business and a holding company. So, that is a rare situation. To do something to operate on a market you have to have two companies. We have to understand the law based on the text, and the legal system and not on the legality system.”

PIS, COFINS and ISS taxes

On the last topic of the Panel, Tiago proposed to move to a different controversial aspect: the Tax related aspect. There are two relevant taxes. Can you give us the perspective of the PIS and COFINS taxes, and also of the ISS?

Manssur began explaining to the audience: The PIS (Profit participation contribution) and the COFINS (Social security financing contribution) are two different federal taxes imposed monthly on gross revenues. And the ISS (Imposto Sobre Serviços in its original) is the tax on services.

The 3 taxes are based on the price of the service. The problem is: What is the price of the service provided by the lottery?, he reflected. And also answered it: “The total amount paid for the services will be the total investment in the bet.

The 14790/2023 law define that taxation was occurred based on the falling bets which is not the revenue.

The fact is that this law does not define that we need to apply the exemption to certain arrangement of income and needs to be done. We still have to define whether this will be a tax routine in the source or not.

To close the debate, Manssur thanked to all the team that had been working on the regulation law, and specially, to Simone Vicentini, Secretary to the Secretariat for Prizes and Gambling.

“I want to close the panel with the following message”, he concluded, “Do believe in the Brazilian market, that after so long, it regulated the online games and bets in Brazil. Thank you very much!”.