In October 2021, the Global Corporate Minimum Tax (GLoBE) rate was set at 15% for Multinational Enterprises (MNEs) under the Pillar 2 of the OECD/IF BEPS 2.0 proposal. The same rate and base were adopted for the new US corporate alternative minimum tax (CAMT). Although the Single Tax Principle suggests that the rate should be around 23%, this compromise was justified as it aligns with the three goals of the corporate tax: revenue, redistribution, and regulation.
The least important goal of the corporate tax is raising revenue, which can be achieved through other taxes. The second goal is redistribution, which means imposing taxes on the rich and reducing inequality. The most important goal of the corporate tax is regulating corporate activities, which can be incentivized by granting deductions or credits in the tax code. Congress uses these to increase revenue and incentivize corporations to engage in activities that meet non-tax goals.
The compromise rate of 15% can be justified as it incentivizes source countries to raise their corporate tax rates to the GLoBE rate, reducing base erosion and profit shifting. However, this rate is low enough to create an incentive for companies to shift profits from high tax jurisdictions to low tax ones. Moreover, this rate is also low enough for wealthy investors to invest in MNEs taxed at 15% instead of domestic corporations taxed at 21% or in other investments.
A 23% rate would be better for revenue and redistribution purposes but could make it difficult for the US to achieve its primary goal of regulating corporate activities. If the GLoBE or CAMT rates are the same or higher than the regular corporate tax, it becomes challenging to regulate through deductions or credits. Congress could substitute refundable credits for those not recognized for financial statement purposes, but this would be politically challenging and could lead to fraud. Overall, the 15% rate is a compromise that balances the three goals of the corporate tax.
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