Minimum Global Effective Corporate Tax Rate as General Anti-Avoidance Rule

Abstract

This article handles the timely and urgent challenge of international corporate tax avoidance that fills the headlines of leading newspapers, monopolizes political debates between presidential candidates and influences the life of every American who is losing more than 100 Billion U.S. dollars in tax revenues annually, while demanding fair taxation of citizens and multinationals. I call upon Congress to enact a new Internal Revenue Code provision that requires a minimum global effective corporate tax rate. According to my proposal, if the global effective corporate tax rate (of any U.S. multinational and its controlled foreign corporations) falls below 15%, the U.S. Corporation will be required to close the gap and pay the Internal Revenue Service up to the 15% minimum tax on its global profits as an interim liability. Additionally, I propose the enactment of an "exit tax" to limit corporate inversions and, finally, advocate for the strengthening of international norms through bilateral treaty modifications and international cooperation. I argue that this innovative proposal offers a comprehensive, distinct and justified tax reform package that will successfully and efficiently address the challenge of international corporate tax avoidance.

This article makes three significant contributions: First, it offers a holistic approach to international tax reform that looks at the whole picture of corporate tax avoidance instead of offering rules that address each strategy of tax avoidance individually – as is common in the current discourse; Second, my argument references and utilizes the extensive literature available that addresses the issue of combating tax avoidance in domestic transactions as a foundation from which to find solutions for tax avoidance in cross border transactions. Therefore, my proposal works within the current framework, rather than starting anew or ignoring the experience gained from dealing with domestic tax avoidance when addressing the issue of international tax avoidance, but also brings innovative and substantial change that is politically feasible as proven by President Barack Obama's proposal of minimum taxation which has some similarities to my proposal. Third, my proposal calls for the U.S. to take on an international leadership role in the area of international tax reform and emphasizes the significance of connecting the U.S. debate with the current trend of international reform as reflected in the OECD Base Erosion and Profit Shifting (BEPS) final reports (published Oct. 5th 2015).

When facing the challenge of curtailing international corporate tax avoidance, our fundamental social contract is at stake. Our responsibility, as citizens, to preserve and protect our democracy, society and economy is calling us to fight for this cause. It is the responsibility of the United States as a world leader and economic power, to enhance and advocate for effective and efficient reform of the international tax regime, so that the global community will be better equipped to face the challenges of a 21st century economy. This is our new fiscal revolution.

Keywords: Multinationals, international taxation, tax avoidance, BEPS, tax reform, tax justice, minimum taxation, corporate taxation, effective corporate tax rate