Banks against social security levy on company profits

Portugal’s banking sector, represented by the Portuguese Banking Association (APB), says it is against a proposed social security levy on company profits.

The Portuguese government’s idea is outlined in the Green Book on the Sustainability of the Welfare System – a proposal from the Minister of Work and Social Security, Rosário Palma Ramalho.

But the idea to create a new contribution on net company profits would scare off investment in capital intensive sectors – like the banking sector – and pave the way for a fresh round of extraordinary cost burdens that would be “particularly difficult to justify” while the government is currently arguing for cutting IRC taxes says the APB.

The idea is nothing new and has been under discussion for several years and has been supported by the PS Socialist Party, the PSD Social Democratic Party, the trade union CGTP, and the Confederation of Trade and Services (CCP).

The policy is justified by the need to diversify revenues and reduce Social Security’s dependence on salaries within a context of automisation and digitalisation. There are also fears that with an increasingly aged population Portugal’s welfare system will not be able to cover State pensions further down the line.

The current Global Contribution Tax, better known as the Sole Social Tax (TSU) is only levied on salaries.

In the first of 18 recommendations made in the Green Book, a committee of experts are suggesting substituting part of the revenues from overall contributions garnered from salaries (TSU) with revenues obtained from contributions levied on company net profits (Net Value Added or CVAL, in line with the respective taxes “calculated to achieve fiscal neutrality in the short term”.

The new contribution, which would be preceded by a study, would be applied to IRC payers gradually over five years.

But the APB, which has undertaken its own study on the effects of a social security contribution on company profits, said it would be detrimental to the business models of companies and institutions with high levels of productivity, such as capital intensive sectors (like the banks).

The Portuguese banking sector is expected to close 2024 with a historic profit of around €6.6Bn according to the Bank of Portugal with the last quarter of the year predicted to be the best ever in terms of profits.