Is Buenos Aires legalising online gambling a game changer in Latam?

The Argentinian city of Buenos Aires has moved to legalise online gambling and sports betting, with Governor Maria Eugenia Vidal signing decree 181 into law at the start of the week.

While this only legalises gambling in the province, it provides online gaming and sports betting firms with a crucial foothold in one of Argentina’s most populous areas and could serve as a springboard to greater legalisation across the country.

Argentine gaming and tax lawyer Dr. Tomás García Botta, chats to EGR Compliance about the potential of the new market and whether European operators should pack their bags and set sail for the Queen of the Plata.

EGR Intel: Do you think there will be a high demand for sports betting licences?

Dr. Tomás García Botta (TGB): The licensing of sports betting poses an additional difficulty for regulators, since many Argentinian clubs (soccer clubs so far) are pressing to receive funds from the proceeds obtained by operators. This will be subject to negotiation throughout the tender offer process, but it should be defined prior to the assignment of any licences. Otherwise, there will be some serious issues with the clubs and soccer tournaments (they may refuse to play, for instance).

EGR Intel: Do you think this will encourage other provinces to follow suit and legalise sports betting and online casino to keep up?

TGB: I think that’s the idea. The city of Buenos Aires and the province of Buenos Aires are the bigger jurisdictions in terms of population and revenue. If they move forward with the regulation and the result is good, other jurisdictions are likely to fall in line. Online gaming is legal already in other jurisdictions, but their markets are small compared to the City of Buenos Aires and the Province of Buenos Aires. For you to have an idea, 40% of the country’s population live in these two districts.

EGR Intel: Are the 20 criteria required to be licensed too restrictive?

TGB: The 20 criteria are quite broad. In my view, whether they turn out to be too restrictive or not will depend on the scoring scale and subsequent relevance that the regulator will give to each criterion. Please be advised that following Decree N0. 189-GPBA-19 the regulator may follow the 20 criteria or establish another criterion. There is a big challenge ahead of the regulator, since it will need to secure a transparent process and at the same time level the playing field for local and foreign operators that may be interested in participating in the tender offer process.

The regulator will need to establish whether the focus will be placed on the size of licence applicants or the strength of their systems. This decision will have an impact on the development of the online gaming market and its long-term sustainability. In addition, important definitions to the terms of the participation of foreign entities in the tender process are yet to be given by the regulators.

Provisions set forth in Law No. 15,079 and Decree No. 189-GPBA-19 are not clear on this matter, and it is yet to be determined is the need of a local partners applies for any foreign entity, or just entities with a registered branch and not to local corporations with foreign shareholders, as well of the extent of such participation. In the beginning the regulation aimed exclusively at foreign companies. Throughout the discussion of the bill in the Legislature’s floor, the need for a local participation (in the form of partnership of at least 15 % by a local company) was added. But the particulars of such a partnership remain unclear. In my view, the goal of reducing tension with local gaming companies was not accomplished.

This circumstance affects both the potential participation of foreign companies, that may decline to participate in the tender offer process before the perspective of a mandatory partnership, and the participation of local companies, that may be excluded if more relevance was given to size instead of the strength of systems. In my view, the regulator will need to actively tackle this issue and reduce this tension, levelling the playfield for local and foreign entities. Otherwise the results of the licensing processing may not the one envisioned when enacting the online gaming regulation and the market may not be sustainable in the long term.

EGR Intel: Is the 25% tax rate on online operators overly punitive in your opinion?

TGB: I would like to clarify that the 25% tax rate which has been mentioned comprises several different percentages going to different groups. A total of 8% will be passed to the Municipal Townships and the Province of Buenos Aires’ Treasury, an additional 2% administrative fee will be passed to the regulator (the Buenos Aires Provincial Institute of Lottery and Casinos) and the remaining 15% is actual tax (Turnover Tax in force in the Province of Buenos Aires).

I wouldn’t refer to this aggregated rate as punitive, but rather higher than desired if you wanted to develop a new market, such as the online gaming one. To this extent, please consider that income of operators will also be taxed at a 41.5% rate at a federal level; and additional taxes will be imposed to end users as well as the operators.

The overall tax burden is significantly higher than in other jurisdictions. This circumstance, in turn, may operate as a hindrance to the desired high level of participation in the tender offer process. As it usually happens in Argentina, there seems to be a lack of coordination between the regulators and the tax authorities, with the added difficulty posed by the existence of different taxing levels (federal and state). It would have been advisable to tackle tax and regulatory issues together, instead of moving forward with a regulatory process and a tax system that does not contemplate specific provisions applicable to online gaming operators. With the current tax framework, several discussions are likely to appear as soon as licenses are assigned, and licensees start operating locally.