[Sport] Ecuador: the political crisis and its unexpected consequences for the sports betting market

[#Steeven.™]

Winston Churchill said "An optimist sees an opportunity in every calamity, a pessimist sees a calamity in every opportunity." This phrase can be applied to the serious political moments that affect Ecuador as a consequence of the death cross that, through Decree 741 and in exercise of article 148 of the Constitution, President Lasso ordered on May 17, 2023.

Cross death is a mechanism of political control between the Legislative Power and the Executive Power in Ecuador and results in "everyone leaving."

The National Assembly can remove the President, and the President can dissolve the National Assembly if the conditions of Articles 130 and 148 of the Ecuadorian Constitution are met. If either of the two options occurs within a maximum period of seven days after the publication of the dismissal resolution or the dissolution decree, the National Electoral Council convenes for the same date early legislative and presidential elections for the rest of the respective periods. So, each Power has the ability to “take out the other”, but when it does so, it also leaves: that is why it is called cross death.

President Lasso was the subject of a political prosecution by the National Assembly, for an alleged crime of embezzlement related to a contract between the Ecuadorian Oil Fleet (Flopec) and the Amazonas Tankers Conglomerate. On May 16, he went to the National Assembly to defend himself and, the next day, dissolved the National Assembly based on his constitutional attribution. This was very likely to happen, since the tension between the president and the National Assembly —where he did not have a majority— was increasing.

The consequence of the dissolution of the National Assembly is that, during the time that Lasso continues in power and until the appointment of the new president and legislators —both Lasso and the assembly members can apply again—, the still Ecuadorian president gathers in his hands the Executive and Legislative Powers and can, therefore, legislate through Decree Laws of economic urgency, with the prior ruling of the Constitutional Court.

For this reason, the new protagonist in this political tension that affects Ecuador is its Constitutional Court. Through the judgment of May 18, 2023 in Case 41-23-IN, the court immediately rejected a claim of unconstitutionality against the Decree of dissolution, with which it considers that the president legitimately exercised the power of cross-death and can legislate temporarily through Decree Laws. As a consequence, the Constitutional Court will be the only one capable of controlling Lasso's actions at this stage.

This is where the Ecuadorian political crisis intersects with the gaming industry. The first Decree Law issued by President Lasso after dissolving Parliament is Decree 742, called "Organic Law Decree for the strengthening of the family economy", whose purpose, according to Lasso's own words, is to reduce by USD 200 million the taxes that affect Ecuadorians and, for this, one of the main measures was the modification of the Internal Tax Regime Law to incorporate a new tax: the single income tax for sports forecast operators, whose practical effect is that legalizes the activity of providing sports betting services to the Ecuadorian market, whether online or retail, whether from abroad or from Ecuador.

As recalled, on May 7, 2011, then-President Rafael Correa organized a constitutional referendum and po[CENSORED]r consultation of ten questions, one of which, the seventh, was: Do you agree that business be prohibited in the country? dedicated to games of chance, such as casinos and game rooms? and that led to the closure of casinos and gambling halls, causing considerable damage to investors and mainly to workers.

This was formalized with Executive Decree 873, published in the Official Gazette Supplement 546 of September 16, 2011 and, later, on February 10, 2014, in the Official Gazette, Supplement 180, the Comprehensive Criminal Organic Code (COIP) was published. ) of Ecuador, in whose article 236, within the crimes against the rights of consumers, users and other market agents, the crime of operating casinos, gambling halls, betting houses or businesses dedicated to carrying out gambling.

However, later, before a consultation formulated by the Guayaquil Charity Board in 2019, the State Attorney General declared that the crime established in article 236 of the COIP and the prohibition must be understood in its literal sense, that is, referred to businesses dedicated to the realization of games whose result is defined exclusively by luck.

As I have already indicated on several occasions, a big mistake in Latin American legislation is that it limits its scope of application to games of chance, when there is a greater number of games that impact the financial situation of the participants that cannot necessarily be classified as games of chance exclusively and, therefore, are excluded from any regulation aimed at allowing, prohibiting or regulating games of chance. And this happened in Ecuador, companies that provide sports betting services or sports forecasts began to appear, both online and physically, without any regulation or authority or specific taxation, because the constitutional framework allows it.

Currently, there are many sports forecasting operators in Ecuador, both domiciled and not domiciled —among the main ones are Betcris, Ecuabet, Bet593, Sportbet, Latribet, Aciertala, etc.—, but there was no specific regulation that recognized their activity. With Decree Law 742, this sector is institutionalized and the Tax on sports forecasts is created, which will only come into force on January 1, 2024. This means that there will be no special tax on sports forecasts until that date, but Their legality can no longer be questioned because, formally, with Decree Law 742, the government is recognizing them as an economic activity on which it can create and collect taxes.

Regardless of agreeing or not with the tax methodology to demand taxes on this activity, which in my opinion violates the principle of equality under the law and the non-confiscation of taxes, which may be analyzed by the Constitutional Court when evaluating the constitutionality of the Decree, what is important is the legal recognition of this activity as something other than the one prohibited by the Po[CENSORED]r Consultation of 2011 and the criminal conduct typified in article 236 of the COIP.

Now comes a new agenda. Within a period of one year, the General Legal Secretariat of the presidency will work together with the Ministry of Tourism, the Ministry of Telecommunications and the Information Society, and the Internal Revenue Service to regulate the activities of forecast operators. sports. It is recommended that the errors that have occurred in the laws of other countries in the region are not made. If President Lasso wants to use the tax on the activity of sports betting provision as a mechanism to achieve the objective of strengthening the family economy and saving USD 200 million, it is necessary to correct some unconstitutionality defects in the aforementioned Decree. For example, the unjustified and discriminatory distinction in the tax treatment of non-residents.

As already stated in Judgment 110-21-IN/22 and accumulated, "equality before the law and the principle of generality of the tax exclude the possibility that the legislator establish unjustified tax privileges or benefits and distribute the public charge in an unequal way between equals” (foundation 252). Therefore, it is not reasonable that if the source of income is Ecuadorian, some operators pay 15% of the bets of the users and other operators pay 15% of the bets less prizes.

The first case is confiscatory, since it seeks to tax a non-existent or fictitious contributory capacity of the operator. Let's give a simple example: if a user bets USD 10 and wins USD 1,000, and then bets that USD 1,000 and loses it, he will only have increased the operator's equity by USD 10 and it would be fair for him to pay a 15% tax on that USD 10. However, with the tax methodology established in article 35.6 of the Internal Tax Regime Law, according to the aggregate established by Decree 742, the operator would have to pay 15% of USD 1,100, that is, more than what was received. It is necessary to make these new taxes compatible with the Ecuadorian Constitution.

https://www.yogonet.com/latinoamerica/noticias/2023/05/22/94659-ecuador-la-crisis-politica-y-sus-inesperadas-consecuencias-para-el-mercado-de-apuestas-deportivas