There is evidence that human rights protection bodies increasingly recognize the link between tax competition and corporate tax avoidance and human rights violations. This is the conclusion when reading the analysis of Niko Lusiani, Director of the Human Rights in Economic Policy of the Center for Economic and Social Rights (CESR), following the recent release of the UN CESCRs General Comment 24.
With the release of the General Comment 24, "a key UN human rights body made its most definitive statement yet that corporate tax dodging - and the policies which encourage it - are incompatible with governments' duties to guard against business-related human rights abuses, even when committed beyond their borders", CESR states. "This can be considered a landmark development, signalling that human rights protection bodies are increasingly willing to hold governments and companies accountable for tax injustice".
“Lowering the rates of corporate taxes with a sole view to attracting investors encourages a race to the bottom that ultimately undermines the ability of all States to mobilize resources domestically to realize Covenant rights,” affirms the Committee. “As such, this practice is inconsistent with the duties of the States Parties to the Covenant.”
The human rights protection system has historically been reluctant to engage in matters of tax policy, particularly cross-border tax abuse. However, human rights treaty-monitoring bodies mechanisms are slowly growing more adept at analyzing and holding governments to account for facilitating corporate tax abuse. In response to findings and recommendations submitted by partners across the tax justice and human rights fields, both the UN Committee on the Elimination of All Forms of Discrimination against Women (CEDAW) and the UN Committee on Economic, Social and Cultural Rights (CESCR) ruled last year that the financial secrecy laws and lax corporate reporting standards of Switzerland and the United Kingdom2 were inconsistent with their human rights duties under international treaties. In the same vein, the UN Committee on the Rights of the Child released a General Comment on public spending in 2016 addressing the necessity of tackling tax abuses as a means of mobilizing resources to fulfill children’s rights in compliance with the Convention on the Rights of the Child.
This latest Comment by the CESCR urges governments to “encourage business actors whose conduct they are in a position to influence to ensure that they do not undermine the efforts of the States in which they operate to fully realize the Covenant rights, for instance by resorting to tax evasion or tax avoidance strategies in the countries concerned.” Seeing as bilateral treaties are what govern international tax rules, the expert body confirms that: “States Parties must ensure that they do not obstruct another State from complying with [human rights] obligations under the Covenant. This duty is particularly relevant to the negotiation and conclusion of […] tax treaties.”
Tax competition and tax secrecy are characterized as being contradictory to international cooperation by the Committee. It also condemns the race to the bottom on corporate taxes as “inconsistent with the duties of the States Parties to the Covenant” and cites the aforementioned treaty body findings on Switzerland and the UK to conclude that: "Providing excessive protection to bank secrecy and permissive rules on corporate tax may affect the ability of States where economic activities are taking place to meet their obligation to mobilize the maximum available resources for the implementation of economic, social and cultural rights.”
The Committee states that in order to end corporate tax abuse, a broader policy reform agenda needs to be adopted and governments need to realize that they have international legal duties toward meaningful tax cooperation. Current international tax rules allow multinational companies to avoid taxes by treating them as hundreds of distinct companies instead of the unitary entities they are, which is why these will need to be modified. “To combat abusive tax practices by transnational corporations, States should combat transfer pricing practices and deepen international tax cooperation, and explore the possibility to tax multinational groups of companies as single firms, with developed countries imposing a minimum corporate income tax rate during a period of transition.”
By explicitly naming tax abuse as a type of corporate activity that undermines human rights within and beyond borders and identifying the types of policies that permit or prevent it, the Committee’s Comment gives tax justice advocates better defined standards to which countries and companies can be held accountable, which is a huge step forward.
CESR's full article can be found on their website.
1Link to the PDF
2Link to the PDF