Tax Reform Could Make the Football Market and the SAF Unviable

Rodrigo Monteiro de Castro's picture
Published: 02/11/23 - Country: Brazil

Tax reform is advancing in the Federal Senate. There are, however, points that could harm the development of entire sectors of economic activity, such as football.

They deserve to be highlighted with regard to sporting activities, in general, and football in particular: on the one hand, the National Congress was sensitive in ensuring a considerable reduction in the IBS and CBS rates for sporting activities; On the other hand, however, PEC 45 did not leave room for full maintenance of the Football Specific Taxation Regime (TEF), which regulates a simplified form of federal tax incidence.

As it stands today, PEC 45 projects a dizzying increase in the tax burden for football corporations, not to mention the growth in complexity. Instead of a simple and successful formula, a true tax barrier will emerge to prevent the brand new and thriving Brazilian football market from following the virtuous path that has been inaugurated since the publication of law 14.193/2021, authored by the Senator of the Republic and President of the National Congress, Rodrigo Pacheco (PSD/MG).

It will be demonstrated below why it is urgent and necessary to change the wording of PEC 45/2019, to admit its own regime for sporting activities. With this, the National Congress will be able to prevent the victory of approving the Tax Reform from meaning a defeat for Brazilian football and the entire market that is in full formation.

For more than a century, football was hostage to associations. Not just in Brazil, it is true, but in practically all the main centers, including European ones.

But the model for organizing football activity has changed over time, due to some reasons, such as financial or reputational crises. From the end of the last century and, in particular, the beginning of the 21st century, it was also understood that a team would not be able to play a leading role in a global and competitive environment without accessing private or public financing channels.

Brazil was slow to understand the new directions and promote structural transformation, through legislation. Attempts occurred, but failed, with the advent of the Zico and Pelé Laws.

The cartel rhetoric, in both initiatives, won over the public interest and that of the Nation. Thus, at the organizational level, the changes had the result (or purpose) of maintaining the structure as it had always been.

Due to these circumstances, at the end of the 2020s, Brazilian clubs were - as they still are - mired in billion-dollar debts and positioned themselves as exporters of "labor".

It was during this period and to solve the endemic problem of sport in the country that President Rodrigo Pacheco presented Bill 5,516/19 ("PL 5,516"), which had the purpose of creating "the Brazilian Football System, through the classification of the Joint Stock Company of Football, [establish] norms of governance, control and transparency, [institute] means of financing football activity and [provide for] a transitional tax system".

PL 5,516, reported by Senator Carlos Portinho (PL/RJ), was approved unanimously in the Federal Senate and, subsequently, by a very large majority - 427 votes in favor and only 7 against - in the Chamber of Deputies. Referred for presidential sanction, it was the subject of some vetoes, many of which were subsequently overturned by the National Congress. Thus, law 14,193/2021, or SAF Law, was born.

Among the devices overturned, the TEF stood out, which stopped being transitory and became permanent. On the merits, the National Congress rightly understood that specificity would contribute to the emergence of a new football market, previously non-existent, within which businesses would be carried out that never came close to football activity, and which presupposed the passage of associative model (therefore, a drain on the public treasury) to the corporate model (by definition, a contributor to the same treasury).

To attract the football club - constituted in the form of an association - to the SAF model, it was established that the TEF would imply "the monthly payment, through a single collection document, of the following taxes and contributions, to be calculated following the box: I - Corporate Income Tax (IRPJ); II - Contribution to Social Integration and Public Servant Asset Formation Programs (Contribution to PIS/Pasep); III - Social Contribution on Net Profit ( " .

The bet was successful: since the advent of the Law, more than 40 SAF's have been created and almost a new dozen are being organized, so that they should become effective and permanent contributors. Important: in the economic calculation carried out by local and international investors to allocate resources in an incipient industry (from the perspective of the capital allocator himself), the existence of the TEF was important, which enables the recovery of technically insolvent teams and the assumption of risks involved.

Despite the results and perspectives involving the football market - including revenue collection -, the proposed tax reform could, paradoxically, make it unfeasible. With the end of PIS/PASEP and COFINS, two of the taxes that are included in the TEF, and with the creation of two others - CBS and IBS -, which will apply according to new logic, the tax burden on the SAF will make it unviable in comparison to the situation of associative clubs, which have historically been subsidized by the State at the expense of Brazilian society.

The magnificent progress made possible by the SAF Law is put at risk and the maintenance of classic 19th century associations is encouraged as an (almost) unique way of developing football activity - which, as it enjoys historical immunities and exemptions, will continue to act on behalf of the country's businesspeople and workers.

The reform could, therefore, make the existence and development of businesses that have begun to emerge and which are expected to intensify in the new football market environment unfeasible, if the current regime of the wording of PEC 45 is maintained.

To prevent this from happening, it is necessary to include football among the economic activities that may have their own tax regime, regulated by complementary law. The TEF is a simplifying solution that needs to be renewed and is in line with the reform for several reasons:

(i) It is a simplified model for calculating federal taxes; does not generate discussion about credit; allows the State to encourage the transition of entities that currently have tax benefits to another model, of a different nature, that pays taxes instead of asking for exemptions, installments and amnesties.

(ii) Just reducing the CBS and IBS rates, contrary to what it may seem, does not prevent the intense increase in the tax burden generated by the impact on the TEF. This makes the entire transformation of Brazilian football that we have just described impossible.

The solution to avoid the emergence of a tax barrier for SAF is very simple. It is enough to be consistent with the reform itself and ensure its own tax regime, with incidence to be regulated by complementary law, including the possibility of a new and broader TEF for sporting activities.

By doing so, Congress will preserve the legal regime of the SAF, ensure that the football revolution maintains its virtuous course and allow, instead of exemptions, amnesties and conflicts, to follow the path already taken in other countries for the development of this significant sector economic and cultural of Brazil.

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Rodrigo Monteiro de Castro's picture

Rodrigo Monteiro de Castro is specialized in corporate and business laws, corporate transactions (M&A), capital markets and contracts.

He holds a Master’s degree and a PhD degree in Commercial Law from PUC-SP. MBA from INSPER. Founder and Former Chairman of the Institute of Applied Corporate Law (“Instituto de Direito Societário Aplicado – IDSA”) (2004-2010). Chairman of the “Movimento de Defesa da Advocacia – MDA” and a member of the Organizing Committee of the Brazilian Congress of Commercial Law (“Congresso Brasileiro de Direito Comercial”). Chairman of the Monitoring Committee for the New Brazilian Commercial Code of the São Paulo Bar Association OAB/SP). Professor of Commercial Law at the Mackenzie Presbiterian University. Author of several books and papers and co-author of Bill No 4,303/12 (Sociedade Anônima Simplificada) and Bill No 5,082/16 (Soccer Corporation).