Nova workboard

a blog from young economists at Nova SBE

Introducing the Portuguese Corporate tax Reform

Something that has been shaking the Portuguese economic-oriented media is the so-called reform of our corporate tax rate (IRC – Imposto sobre o Rendimento das pessoas Colectivas).
Lead by Prof António Lobo Xavier, a committee studied for over 6 months the mentioned tax and presented a set of measures (which you can see here) that have been open to public discussion for roughly a month.

This reform proposal was built with a big objective: The simplification and review of the tax and to target its changes to promote the competitiveness and internationalization of Portuguese firms. Following a international trend, the Committee suggests that the Government should cut the corporate tax rate progressively from 31,5% (current maximum rate) to 18% in 2018.

One of goals would be to attract FDI to Portugal, and while there is no consensus in literature that the corporate tax can draw that much investors attention to a specific country by itself, Portugal have some geographic (Being close to Africa, closer to America than most European countries, having a huge Exclusive Economic Zone) and cultural (bonds with past colonies that are now emerging markets such as Angola and Brazil) advantages to complement this tax rate. A very successful case of this kind is Ireland, that with a tax rate among the lowest ones in Europe (12,5%) was able to bring a lot of American companies to our continent. Companies such as Dropbox, Facebook, Linkedin, eBay, Twitter, IBM and Google (for Europe) chose to locate their headquarters in Dublin, to get advantage from the Double Irish Arrangement, and creating a huge tech cluster in Dublin, almost a European Silicon Valley.

And this is another important point, made by Prof. Lobo Xavier recently as well: The tax rate itself is not the most important thing, the legal and market framework in which the tax rate is made upon is what matters. And concerning this the Committee presented a lot of process simplifications to, on one hand approach the legal context of this tax to European Tax Law, and on the other hand, to reduce the bureaucracy related to IRC, while simplifying and stimulating internationalization. Examples of measures would be the end of some double taxation events, reduction of the amount of paperwork related to paying the tax, and shrinking some costs of context.

Following the Irish case of success, complementing a competitive rate with the right framework, geographical and cultural advantages, this reform could help transform Portugal in a entry platform of capital flows in Europe.

Sérgio Rocheteau

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Author: studentnovasbe

Master student in Nova Sbe

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