Portugal is one of the OECD countries where the top statutory corporate income tax (CIT) rate is highest, currently standing at 31.5%. However, statutory tax rates fail to capture the actual tax burden faced by firms, because this also depends on tax benefits, incentives and deductions prevailing at both the national and international levels. As an alternative, the actual tax burden is typically measured using effective tax rates (ETR), which can be defined as a ratio between firms’ tax expenses and a metric of their pre-tax income.

Micro data for Portuguese non-financial firms over 2010-2019 show that the average ETR computed with EBT in the denominator has remained broadly stable at around 25% in recent years. The calculation of an average “weighted” statutory rate, with weights derived from the sample EBT distribution, shows similar values. The relative stability of the average ETR should reflect two opposing effects: the cut of the general CIT rate, following the international trend, and the increase in progressivity due to the introduction and subsequent reinforcement of a State surcharge in the last decade.

An analysis of the relation between firms’ ETR, using EBITDA in the denominator, and their characteristics shows that lower ETR appear to be associated with higher financial leverage and capital intensity ratios, mirroring the favourable tax treatment of interest expenses and investment on fixed assets. Regarding firms’ size and productivity, the association with ETR changes across the respective distributions.

For more details see Braz, Cabral and Campos (2022), “A micro-level analysis of corporate income taxation in Portugal”, Economic Studies, Banco de Portugal, Vol. VIII – No 1, January

Prepared by Cláudia Braz, Sónia Cabral and Maria Manuel Campos. The analyses, opinions and findings expressed above represent the views of the authors and not necessarily those of the Banco de Portugal or the Eurosystem.

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