23 September 2008

Portugal: Discriminatory taxation of gambling winnings?

European Commission Threatens to Refer Portugal to the ECJ

The European Commission has sent Portugal a formal request to amend its discriminatory rules that provide for the taxation of foreign lottery winnings, despite winnings from lotteries organised in Portugal being exempt from income tax.

According to the Portuguese rules, income earned in Portugal in the form of prizes or winnings from competitions, games or gambling is subject to taxation. However, an exemption applies to lottery winnings from Euromilhões e Liga dos Milhões, lotteries and games organised by the Portuguese monopoly Santa Casa da Misericórdia de Lisboa, which also carries out activities of social interest within the country.

The Commission considered that the exemption provided in the Portuguese legislation constituted a discrimination prohibited by the EC Treaty, as the favourable treatment is not open to other EU entities also carrying activities of social interest similar to Santa Casa da Misericórdia de Lisboa.

The Commission stated that taxing the winnings from foreign but not national lotteries cannot possibly be justified as a measure to avoid the damaging consequences of gambling.

The Commission therefore considers these rules to be contrary to the EC Treaty and the EEA Agreement, as they restrict the freedom to provide services. This request is in the form of a reasoned opinion, the second stage of the infringement procedure under Article 226 of the Treaty.