In light of the upcoming regulation of sports betting and online gambling in December this year, Brazil has recently released new Normative Ordinance No. 722. One of the main focuses is relevant technology and security requirements, which should open the possibility for data centers to be located outside the country.
On top of that, it was decided that the tax on player winnings that exceed BRL2,824 (£437.77/€508.05/$547.25) would be 15%. According to the decision made by Brazil’s Economic Affairs Commission (CAE), the operator will be in charge of not only calculating the tax contribution but collecting it as well.
These groundbreaking changes follow a recently launched Normative Ordinance No. 615, which banned operators from accepting credit card or cryptocurrency payments. Future ordinances to be released will focus on advertising and social responsibility.
Requirements for Data Centers Outside the Country
Although the new rule requires data centers to be in Brazil, exceptions can be made for transferring data abroad provided that certain conditions are met.
So, a data center can be located abroad provided that it has legal agreements with Brazil, subject to prior approval from data holders. Also, the Ministry of Finance in Brazil must have secure and unrestricted access to the data, to ensure full transparency.
To add an extra layer of security and protection, operating agents must replicate data in Brazil. The center needs to have thorough plans for situations that put data at potential risk. Also, the centers need to be accredited with ISO 27001 certification.
Another thing worth mentioning is that operators will be required to have a Brazilian partner that holds at least 20% of the company’s capital in the country.
Other Significant Changes from Normative Ordinance No. 722
Operators are required to obtain certification for their platforms and systems from relevant bodies. Gaming Laboratories International was the first to gain accreditation, followed by eCOGRA.
Strict technology and security standards, including protection against fraud and unauthorized access, will be enforced. Systems must be regularly updated and tested to comply with regulations and protect against new vulnerabilities.
They should ensure the integrity of bets and results to provide transparency for users. Operators must also comply with the General Data Protection Law, ensuring security measures and obtaining explicit consent from users for data collection. Users should be able to review and delete their data without any obstacles.
Licensing requires certificates valid for the authorization period, with revalidation annually or when critical components change.
While most aspects do seem to be well-arranged by the Normative Ordinance No. 722, there are concerns that it could affect the market. One of the biggest barriers operators will struggle with is the costly and complex certification process and mandatory audits to ensure they are compliant with up-to-date requirements.
Taxes Cause Lots of Concerns in the Industry
When it comes to taxes, it’s important to note that the net prize on which tax will have to be paid represents the difference in the value of the winnings and the bet amount. It encompasses both sports games and online casino games.
However, the Brazilian Institute of Responsible Gaming (IBJR) commented on the newly-established tax as “legally questionable”, stating that:
“By requiring the taxation of prizes to be considered separately without allowing compensation for losses, the federal revenue’s understanding makes it possible to tax bettors who did not earn any effective income (because they lost more bets than they won), which weakens the constitutionality of the rule and has a perverse effect on the consumer.”
Source:
“New ordinance reveals some exceptions for data centres outside Brazil”, igamingbusiness.com, Goldsmith, Kyle, May 7, 2024.
“Brazil bettors set to face 15% tax on winnings”, igamingbusiness.com, Goldsmith, Kyle, May 9, 2024.