iGamingBusiness ■ Issue 57 ■ July/August 2009 ■ 11

LAW & LEGISLATION

TAX PLANNING AND ONLINE CASINOS IN PERU

Carlos A. Fonseca Sarmiento, CEO of Gaming Law S.A.C., provides iGaming Business with an insight into online gaming in the South American country of Peru.

TYPICALLY, governments are said to have three political positions regarding Internet Gambling: to regulate (for example, Antigua & Barbuda, Australia or Panama), to prohibit (the US) or to wait (most of the Latin American countries do not know what decision to make, do not want to make a decision, or are not interested in making a decision on this matter for the time being).

Concerning the countries that do not have a specifi c legislation on Internet gambling, it is necessary to review their Constitutions and determine whether or not the they have included the classical Freedom Principle, in virtue of which all economic activities are lawful as long as they are not expressly prohibited by law.

In the case of Peru, the 1993 Constitution has set out the Freedom Principle under title 2°, which establishes the following: “every person shall have the right to: 24.- personal freedom and security. Consequently: a) No one may be required to do

anything not ordered by law or prevented from doing what the law does not prohibit”.

At a statute level, the 1984 Civil Code, which regulates, in general, all games of chance, assigns a specifi c legal effect both to existing games and those that do not yet exist. Titles 1942° to 1949° regulate the Gaming and Wagering Contracts and divides games of chance into three types: allowed games, those which are regulated by legal provisions; prohibited games, those expressly prohibited by legal provisions; and fi nally, unauthorized games, those that are neither expressly prohibited nor expressly allowed by any statute.

Consequently, unauthorized games are not illicit games; they do not impute criminal responsibility upon those who organize the games nor upon those who participate in them. The only legal effect is that a debt related to this type of game cannot be claimed through the courts; yet, whoever willingly

pays a wager in connection with an unauthorized game may not later request for its refund; debts arising out of this type of game are considered “natural obligations”.

“Natural obligations” may not be claimed through the courts; yet, if debtors willingly pay them, debtors may not claim their refund later, since they are considered debts of honor.

Internet gambling, sportbooks, keno, pachinko, among others are considered unauthorized games in Peru; therefore, by operation of the Freedom Principle, such activities would be lawful economic activities since they are not expressly forbidden. In this type of game, the player fi rst places the wager and then plays, thus, there is no risk to the game organizers (since the player who placed a wager and then played may not claim in the courts that the bet be refunded because the law so prohibits).

It is for this reason that the discussion on Internet Gambling in Peru – as is the case in other

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LAW & LEGISLATION

12 ■ iGamingBusiness ■ Issue 57 ■ July/August 2009

Latin American countries – is not on whether this is a lawful activity, but rather on what is the most profi table way to operate it. It is here that the tax system plays a driving role.

TAXING ENTERPRISE Internet gambling in Peru may be operated under two modalities. Offshore, when operated by a company whose place of business is not in Peru and has a server abroad; and onshore, when it is operated by a company incorporated in Peru and its server and technical equipment are located in Peru. Most think that operating under the offshore modality is the best option; however, there are a few reasons that would warrant the onshore modality. First, the public may be wary of placing money in a company with no local representation or legal liability. Second and more importantly, the likely tax consequences may increase the cost of the operation and may thwart the business profi tability.

The income tax in Peru is levied upon all of the income from Peruvian sources, including those obtained from non-resident companies in Peru. Pursuant to the tax legislation in force, income from Peruvian sources includes the income from digital services (for example, services rendered through the Internet) economically used in Peru. The Peruvian Tax Authority could invoke this law in order to force companies offering Internet gambling to Peruvian residents to pay an Income Tax equal to 30% of the company’s gross income, without any possibility of deductions over the gross income.

On the other hand, if the company performs onshore operations, it will also have to pay income tax at a rate of 30%, but over the net income rather than the gross income. In other words, to determine the net income, the company may deduce as expenses the payments made to foreign companies supplying online casino software or technical assistance, or call center services, payment of loans to third parties or shareholders, travel expenses connected to participation in conferences, staff expenses, counsel fees, local taxes, etc.

Nowadays, we can appreciate both offshore and onshore Internet casinos in Peru. An example of the fi rst case is www.casinoperu.com which, according to its webpage, is operated by Cristalisle Management Ltd., located in Nicosia, Cyprus. The fact of its being a foreign company is traded off with its advertising activities in the local mass media, turning it into the most popular online casino in Peru. Some of its marketing gimmicks include advertisements in Peru’s main newspaper, exposure on the most highly ranked television shows on local channels, and placement of advertising panels on the main roads of Lima (Peru’s capital). In this case, it would be important to assess the relationship between the promoting company in Peru and the online casino supplier based abroad, since the Tax Authority could consider the former the permanent establishment or commercial agent of the latter and demand that the two pay income tax to Peru.

An example of the second case is Iberian Software S.A.C., a Peruvian company who obtained the municipal permit to operate an online casino,

AUTH

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Carlos A Fonseca Sarmiento is an attorney and master in Public Administration, and is also an international speaker in legal

issues and public politics on gaming. He is the President of Interamerican Institute of Gaming Law (Instituto Interamericano de Derechos sobre Juegos de Azar y Apuesta (IIAA)) and member of International Masters of Gaming Law (IMGL),

of International Union of Lawyers (UIA) and of International Association of Gaming Advisors (IAGA). He is partner of Chehade, Fonseca, Servat, Suarez & Varela Law Firm and owner of the most recognized consultant company in gaming law for Latin American countries: GAMING LAW S.AC., you can visit his web site at: www.gaminglawsac.com. carlos@gaminglawsac.com.

becoming the fi rst company ever to be granted a license to operate an online casino from Peru; and therefore, subject to all of the administrative, tax, and civil laws relevant for the operation of an online casino.

LAND OF OPPORTUNITYPeru has over 28 million inhabitants; it is a country with an economic growth over the world average and with signifi cant development of the gaming industry. At present, there are over 700 land based casinos or slots parlors and strong rules governing these types of games. Nevertheless, there are other broadly spread games of chance, with

little regulation such as lotteries and horseracing. Finally, there are yet other games, which are neither regulated nor prohibited and so benefi t from the legal loophole and can be operated as any economic activity suffi cing for this purpose the municipal license and payment of taxes. In all probability, Peru will come across as a strategic location for Internet gambling service companies wishing to venture into the South American market. Peru is not just about Macchu Picchu, exquisite gastronomy, or ideal destination for adventure sports such as surfi ng or rafting; Peru may also appeal to those interested in investing in the gaming industry. ■

“The discussion on Internet Gambling in Peru – as is the case in other Latin American countries – is not on whether this is a lawful activity, but rather on what is the most profi table way to operate it.”

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