Institute for Research in Economic and Fiscal issues

IREF Europe - Institute for Research in Economic and Fiscal issues

Fiscal competition
and economic freedom


Portuguese Companies continue to evade Corporate Tax

Portugal has a long tradition of corporate tax evasion. Perception of high tax burden, social tolerance to fraud and evasion, high psychological fiscal pressure* , instability and insecurity of the tax codes and complex and slow fiscal system are the factors usually pointed as the ultimate causes for this phenomenon.

Socialists have been in power since 1995, with the exception of José Manuel Barroso’s government from April 2002 to July 2004. During these 15 years, governments after governments have tried to address this problem and governments after governments have failed to show results.

Indicators of this reality were indentified 15 years ago that still hold true according to the latest data. Namely: a highly concentrated tax base, apparent under invoicing, high use of fiscal planning and deductions and a high percentage of companies with losses.

In 1994, only one third of societies were paying Corporate Tax. According to numbers just published referring to 2007, that percentage is now 36% of the 370.000 companies. It is important to note though that to that percentage should be added 15 percentage points corresponding to companies that pay the Minimum Corporate Tax, even though they did not report activities that would otherwise justify taxation. It should also be added, to make this point clear, that in 1997, 60% of companies reported losses, a number that in 2007 was still at 57% (which is important because, according to Portuguese Law, companies can consolidate future results with current losses over a period of four years— it was even 6 years until 2010).

Regarding concentration, in 1994, 123 companies paid half of the taxes. In 1995, a quarter was paid just by 2, both state-owned. In 2007, 158 companies paid 59% of the taxes. The fiscal machine over scrutinizes these companies, given that such a small pool of payers generates half of the tax revenues.

Also regarding concentration, but now in the other end of the spectrum, in 1995, 96% of Portuguese companies contributed for only 17% of tax receipts to government. In 2007, given the Minimum Corporate Tax, those 96% pay now 21%. In average, these societies paid, in 1994, 2,060 EUR. That number grew to 2,117 EUR in 2007, in nominal terms.

These data indicate an ongoing massive tax evasion, accepted by the general public for the reasons above mentioned. All the government has done so far is meddling with the code and add some green and social deductions.

A reform to cut the tax rate, simplify and stabilize the tax code, and apply a flat tax rate is deeply needed, but highly unlikely without a change of mentality.


* “Psychological fiscal pressure”—“pressão fiscal psicológica” in Portuguese—is a juridical term used, for example, in the Constitutional Court resolution available here . It refers to the subjective value any individual or company attributes to the tax burden it faces.

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