On 20 January 2025, the Federal Brazilian Tax Authorities (RFB) published Solução de Consulta (SC) - Cosit 2/2025 (dated 16 January 2025) (the Ruling), addressing the income tax treatment of gains from online games and betting, as well as net prizes from fixed-odds betting.

Background

By way of background, following the legalization of fixed-odds betting by Law 13.756/2018 (as amended) and more recent regulation by Law 14.790/2023, controversy remains around certain issues concerning the sector. For example, in relation to fixed-odds betting, there has been uncertainty over whether operators have an obligation to withhold income tax on net prizes. The controversy arose because Normative Instruction 2.191/2024 (dated 6 May 2024) was not reviewed in light of subsequent developments to the relevant legislation, which occurred on 22 May 2024 and led to inconsistencies between the effective legislation and the RFB's public administrative guidance.

The Ruling

Pursuant to the Ruling, the RFB considers:

1. Gains that Brazilian residents obtain from Brazilian sources from playing games in which there is a performance component (i.e., the results are "predominantly" tied to the player's skill or actions, such as poker tournaments) should be considered as remuneration (with the prize treated as employment remuneration), and subject to withholding at source in accordance with the monthly progressive rates. This income tax shall be considered as anticipation of the individual's total income tax due in a given year.
2. Gains that Brazilian residents obtain from foreign sources from playing games and placing bets (including online versions of such games and bets) should be subject to income tax through monthly collections (carnê-leão in Portuguese), following the general regime applied to foreign income received by Brazilian-resident individuals. In this case, any potential losses arising from the games or bets cannot be offset against potential gains, as there are no legal provisions allowing for such deduction or compensation.
3. Net prizes that Brazilian residents obtain from Brazilian sources and are connected to fixed-odds bets should be considered income, but taxed under the specific regime set forth by law 14,790/2023. That is, a 15% income tax rate should apply on income exceeding the first (annual) exemption threshold and should be due annually. In such cases, there should be no monthly collections (carnê-leão) or withholding at source, with the taxpayer being individually responsible for reporting and paying the tax on an annual basis. The Ruling expressly notes that the existing Normative Instruction (i.e., Normative Instruction 1.500/2014 as amended by Normative Instruction 2.191/2024) should be updated to reflect the legislation as it currently reads (after the reversal of the vetoes).

Although a Private Ruling (Solução de Consulta in Portuguese) does not constitute law or legal precedent, it does provide further insight and guidance for Brazilian entities in relation to how the RFB is treating arrangements under consideration.

Implications

The Ruling provides some welcome clarity in relation to the RFB's view of the proper tax treatment of fixed-odds betting prizes for Brazilian residents, especially for operators. Naturally, given the recent regulatory developments involving the industry, additional questions will arise in relation to the extent to which certain games involve a performance component. Taxpayers operating in the sector should consider how the RFB's analysis in the Ruling might apply to their situations and whether operational restructuring of their arrangements (especially certain games) may help in obtaining additional certainty in relation to the relevant tax implications on similar operations.