Corporate Tax: We Tried the Stick, How About the Carrot?
Due to corporations’ on-going focus on tax planning and their continuous efforts finding new tax minimization strategies, multinational corporations are not paying their “fair share” in taxes for a long time now, and as a result the corporate tax law is unable to generate much tax revenue. This is a global phenomenon, and by no means only a U.S. domestic problem. Governments response to this problem has always been the same and almost single dimensioned: introducing new tax laws and regulations, revising old tax laws in order to shut-down the so-called “loop-holes” and hoping this will put an end to the problem of corporate tax evasion. For decades this approach has failed us. This paper examines the history of the corporate tax in the U.S, and the corporate tax avoidance industry which emerged into a global problem in the last 50 years, and finally suggests a new policy that aims to create an incentive for corporations to shift their focus and efforts away from abusive tax planning, and into investments in the economy. In the heart of this new policy is the recent Pillar 2 and the Global Minimum Corporate Tax that can and should be used in order to expand international cooperation between countries and as a tool for minimizing tax evasion. Pillar 2 is a truly historic moment for international and corporate tax, for the first time ever it helped set and define the corporate tax at a rate that is acceptable by (at least) 136 countries, and now is the time for countries to adopt a new way of thinking: offer this rate as the carrot for corporations who choose to act in certain ways, while still keeping the stick: the current (higher) corporate tax rate for those who choose not to adopt the new policy.