Socio-political challenges to taxing multinationals: Do corporate tax cuts benefit the home jurisdiction?

Governments and policymakers are increasingly faced with the trade-off of protecting their tax revenue bases (with, inter alia, cross-border anti-avoidance rules) and keeping up with increased international tax competition (exemplified by corporate tax cuts). Recently many jurisdictions have proposed further reductions to their corporate tax rates. This is exemplified by the US and UK, who have indicated the possibility of eventually reducing their headline corporate tax rates to 15%.The pressure to reduce corporate tax rates is largely driven by the perceived effectiveness of attracting foreign investment through this measure. MNEs’ apparent imperative to engage in tax-minimising behaviour is often justified by an ‘efficiency’ argument. This paper explores and expands on the literature by observing that it is arguably more efficient to implement economic rent taxation than simply reduce headline corporate income tax (‘CIT’) rates.In doing so, this paper bridges the gap between economic theory, practical optimisation modelling and applied legal research. Specifically, this research consists of both a legal comparative analysis featuring case studies of the Belgian and Italian ACE-variants, with a focus on the political hurdles to implementing and sustaining these reforms. This is complemented by the simulation analysis of a tax-minimising multinational enterprise’s (MNE’s) behavioural responses to both existing and proposed tax regimes, and in particular to reductions in those regimes’ CIT rates.The results are particularly important considering the international ‘race to the bottom’ in tax rates coupled with the increasing budgetary pressures arising from ageing and growing populations’ growing demand for publicly funded services. This paper aims to provide a useful reference point for policymakers’ future considerations in relation to the implementation of corporate tax cuts and the taxation of MNEs