LATIN AMERICA
some operators pay 15 percent of the gamblers’ bets and other operators pay 15 percent of the bets minus the prizes. The first case is confiscatory because it seeks to tax a non-existent or fictitious taxpaying capacity of the operator. For instance, If a gambler makes a first bet of US$ 10 and wins US$1,000 and then immediately makes a second bet with that US$1,000 and loses it, the operator’s net worth will only have increased by US$10, and it would be fair to pay a 15 percent tax on that US$10. However, based on the tax method set out by Executive Decree 742, the non-domiciled operator would have to pay 15 percent of US$1,100, that is, more money than it has actually received. If it is interpreted that the tax for non-domiciled operators is on the deposits of registered users, regardless of whether the players have made a bet, the situation is worse since the money that is in the individual gaming accounts is not yet a profit for the operators. As with Peru, the consequence will be that the non-domiciled operator will incorporate a company in Ecuador to reduce their tax burden. 15% tax on winners of sports forecast bets in Ecuador. Double taxation of stakes Executive Decree 742 has established the obligation for winning gamblers to pay a single 15 percent tax on the value of each prize received in cash or in kind from sports forecast operators with these operators acting as withholding agents for the tax. As mentioned above, the gambling tax is a special and additional tax that seeks to levy the money the gambler has spent on this activity. If the State establishes a tax on the gambling profits of an operator, it should not be necessary to add an additional tax on the money that the operator gives winning gamblers. Let us use the following example: an operator receives an initial bet of US$100 from gambler X.
The gambler wins a prize of US$1,000. Gambler X places a second bet with the entire earnings, that is, US$1,100, and loses. There are no more bets during that month. If domiciled in Ecuador, the operator will have to pay a tax on the difference between the bets received (US$1,100) and the prizes awarded (US$1,000), that is, on US$100, a US$15 tax. The gambler, in turn, will have to pay US$150 in taxes for the US$1,000 prize received. To avoid this, the operator’s 15 percent withholding would have to be immediate each time he delivers a prize. The rationale for this technique is to limit gambling, but there is a contradiction between a model which protects the interests of the State (which seeks taxes) against a model which protects gambler’s interests (which does not encourage gambling). Here we could discuss paternalism and the unreasonable limitation on the right to the free development of personality, which justifies people’s right to gamble. Additionally, the State should only collect a reasonable part of the contributive capacity in these activities sufficient to reduce the negative externalities that this new activity generates for the State. In President Lasso’s own words, the reason for this tax and Executive Decree 742 is “to reduce by US$200 million dollars the taxes affecting the Ecuadorians”. Therefore, it is not consistent simultaneously to look for new tax resources with a new activity, whilst at the same time establishing measures that are disproportionate and incompatible with constitutional rights and would probably result in failure to reach the tax goal. Finally, if there are no changes to this tax structure, it is predictable that the tax reform will be a failure as may be explained by the Laffer Curve and as has happened with the taxes on gambling in Bolivia. That, however, will have to be the subject of future article.
Carlos Alberto Fonseca-Sarmiento Managing Partner, Fonseca Abogados LLC For information contact carlos@fonseca.pe +51 980594598
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IMGL MAGAZINE | OCTOBER 2023
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