Efficient Economic Rent Taxation under a Global Minimum Corporate Tax

IMF Working Papers, March 15, 2024

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The international agreement on a corporate minimum tax is described as a milestone in global corporate tax arrangements.
The minimum tax disturbs the equivalence between otherwise equivalent forms of efficient economic rent taxation: cash-flow tax and allowance for corporate equity.
The marginal effective tax rate initially declines as the statutory tax rate rises, reaching zero where the minimum tax is inapplicable, and increases thereafter.
This kink in the marginal effective tax rate occurs at a lower statutory rate under cash-flow taxation.
The authors relax the assumption of full loss offset.
The paper provides a routine for computing effective rates under different designs.
The paper discusses policy implications of the minimum tax.

Relaxation of the full loss offset assumption.
Provision of a routine for computing effective tax rates under alternative minimum tax designs.
Comparative analysis of cash-flow tax versus allowance for corporate equity with respect to the interaction with a global minimum corporate tax.

The distortion of equivalence between cash-flow taxation and allowance for corporate equity by the minimum tax implies different policy outcomes depending on tax design.
The kink in the marginal effective tax rate and its earlier occurrence under cash-flow taxation have policy relevance for statutory rate setting and design choices.
The routine for computing effective rates is positioned as a tool to inform policy decisions about minimum tax design and interaction with domestic tax systems.