LATIN AMERICA
legislators partially corrected the mistake before the new tax came into force. Let us hope the same happens in Ecuador. The irresponsible and arbitrary use of the term “compulsive gambling”, without any technical justification, as if it were a magic word enabling the authorities to support the creation of unconstitutional taxes, is a common phenomenon in taxation laws applying to the gambling industry in Latin America. The result is the approval of laws that violate the constitutional guarantees limiting the exercise of tax power, mainly the principles of equality, legality, and non-confiscation. Gambling taxes are “special” and “additional” taxes to the general taxes levied on any economic activity. They are justified on the externalization of players’ taxpaying capacity evidenced in the money they set aside for betting games. It is not a basic need. While it is a human right to enjoy free time, it is also legitimate for the State to exercise its power to tax those individuals whose spare time is used to satisfy their leisure needs by participating in betting games. The operators of such businesses, like any other entrepreneurs, have to pay a general tax on their profits, but since these come from the surplus money that players have and with the purpose of protecting the public interest in this activity, the State incurs costs that it did not have before. Therefore, this new control activity legitimately undertaken by the State stems from the new business and should be financed through “special” and “additional” taxes on the operators of said businesses. The issue in question is, then, which is the best technique to establish a gambling taxation system. The decision to choose the most suitable tax should be based on criteria of justice and respect for the Constitution, but unfortunately this is not the case. Unreasonable taxation methodologies are chosen whose only purpose is the collection of taxes and conflicts arise. The disputes end up in Constitutional Courts. It hurts to say it, but it is the hard truth; by exercising their taxing power in online gambling, our authorities offer us a graphic example of Murphy’s Paradox: “It’s always easier to do it the hard way.” Below is a summary of the taxes on online gambling currently approved in Peru and Ecuador.
regulating remote gaming was approved. The Law has many errors, but one drew a lot of attention causing it to be modified before it came into force: the gambling tax. In effect, a tax of 11.76 percent of monthly gross profits obtained from the players’ bets was created. However, not everyone was obliged to pay this tax. If operators are domiciled abroad (e.g., in Malta, Curaçao or Isle of Man, which are the jurisdictions where operators currently offering their services to the Peruvian market are located) they are not required to pay the gambling tax even though their income is from a Peruvian source. But if operators are domiciled in Peru, they are required to pay that tax advantaging foreign operators who save themselves 11.76 percent of gross profits. From a constitutional point of view, a tax such as the one created through Law 31557 violates the principle of taxation equality, acknowledged by Article 74 of the Peruvian Constitution, since the same fact (i.e. obtaining profits from gamblers registered on websites with gaming licenses from the Peruvian government) would be treated differently depending on where operators have their place of business: those domiciled abroad would not pay the special tax while others (incorporated in Peru) would have to pay. This tax was born with a death certificate. It is not clear who came up with such an unfair scheme, and in all likelihood had Law 31557 come into force in its original form, it would have been challenged by those who were required to pay this tax, as it represented a gross violation of the constitutional principle of equality before the law. This case proves a point already mentioned. When legislating on betting games in general, there is not much reflection by legislators, nor do they apply a reasonableness test to determine the impact on constitutional rights. The test was developed by the German jurisprudence and promoted by jurist Robert Alexy and as a side point, most Latin American Constitutional Courts use the reasonableness test to assess conflicts between constitutional rights. It was thus predictable that such a discriminatory tax would not be confirmed by the Peruvian Constitutional Court. Legislators reacted in time and, before Law 31557 entered into force, Law 31806 was passed and published on June 28, 2023. This law amended Law 31557 and established that all operators – whether domiciled in Peru or abroad – must pay the monthly tax of 11.76 percent of their gross profits once they
Peru’s 11.76% tax on gross profits. First for some and later for all
By Law 31557, published on August 13, 2022, Peru’s first Law
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IMGL MAGAZINE | OCTOBER 2023
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