The European Commission has referred Portugal to the European Court of Justice over its discriminatory taxation of lottery winnings.

Portugal's tax provisions provide for taxation of the vast majority of foreign lottery winnings whereas winnings from national lotteries or from lotteries part of the European Euromillions network are exempt from income tax. The Commission considers these rules to be contrary to the EC Treaty and the EEA Agreement, as they restrict the freedom to provide services.

According to the Commission press release, following the reasoned opinion sent to Portugal by the European Commission in September 2008, Portugal amended in December 2008 its legislation and extended the tax exemption to winnings from the State lotteries which are part of the European Euromillions network (i.e. Euromillions lotteries from Belgium, France, Ireland, Luxembourg, Portugal, Spain, United Kingdom and Switzerland). However, Portugal did not extend the tax exemption to all foreign state lotteries: the winnings in respect of the vast majority of other state lotteries organised in other EU Member States and EEA countries, which are not part of the Euromillions network, continue to be taxed in the hands of Portuguese residents.

Section 613 of the Taxes Consolidation Act 1997 provides that the winnings from lotteries are not chargeable gains – the source of the lottery winnings is not specified. However, section 216 provides for an exemption from income tax in respect of profits from a lottery to which a licence under the Gaming and Lotteries Act 1956 applies. The ECJ decision may have relevance for the latter.