Taxation of Corporate Income and Internationalization of Firms: An Empirical Analysis

Abstract

Given the highly contentious atmosphere about the impact of internationalization in corporate tax burdens - due to transfer prices, thin capitalization, tax shelters and other suspects - and the lack of research, in Portugal, about this topic, the purpose of this paper is to present empirical evidence on the relation between internationalization and tax burdens for Portuguese companies. This paper use a data panel collected by Portuguese Statistical Office during 1996-2000 period. The balanced panel includes 1,485 firms (i.e. 7,425 observations), with more than 100 employees, grouped into 13 sectors based on their main economic activity. The results show that the effective income tax rate of Portuguese firms is positively related to their internationalization. The results also show that firms where the State is an equity holder have a lower effective tax rate. The sector of economic activity of the firms is not relevant to explain their effective tax rate.