Misuse of Deferred Taxes in Portugal

Abstract

Financial transparency is essential for stakeholders to make decisions, ensuring a correct amount of tax is paid to the state. Many companies have opted for the recognition of deferred tax assets to present a different result, but there is scant literature. This study investigates the impact of recognizing deferred tax assets and their contribution to earnings manipulation, together with the effect of the 2008 global financial crisis. Using data from 29 companies listed on the stock exchange and headquartered in Portugal between 2007 and 2012, formalize correlation tests and a linear regression model were used, concluding that more indebted companies tend to recognize more deferred tax assets, paying less tax to the state and that for the sample size and study period, it was not possible to conclude the impact of the 2008 financial crisis.