Taxes – compulsory contributions by individuals and entities to local, regional and state governments – are primarily aimed at raising resources for government expenditures. They also serve other purposes, including redressing inequalities in society and deterring or encouraging certain behaviours, notably consumer choices deemed harmful to, for example, their own health or to the environment. Fiscal and tax policies that are grounded in human rights can lead to poverty reduction and promote sustainable development. Similarly, tax policies aimed at supporting sustainable development can lead to improved fulfilment and protection of human rights.
States are losing large amounts of potential tax revenue to tax incentives and tax avoidance. According to an IMF Working paper from 2015, tax losses to tax avoidance in “developing states” amounts to roughly US$200bn annually, or around 1.3% of GDP in those states. A study by UNCTAD estimates that developing states lose around US$100bn annually from foreign direct investment (FDI) being routed via tax havens. Additionally, research by ActionAid shows that “developing states” give away over US$138bn in corporate tax breaks alone every year.
Beyond tax incentives and tax avoidance is tax evasion and tax abuse. While the later are not new, scandals such as the Panama Papers have raised awareness about the current scale of the problem, with “dozens of political leaders from all corners of the globe being implicated in large-scale tax evasion and avoidance through tax havens, effectively robbing government coffers around the world of much-needed resources that might otherwise be used to fulfill the human rights of ordinary citizens.”
In line with the UN Guiding Principle 8 on Business and Human Rights, states should ensure policy coherence so that their tax and fiscal policies are aligned with their international human rights obligations. This means that states are expected to strive for coherence between corporate/fiscal tax and human rights laws and policies, both at the domestic and international levels, and simultaneously avoid corporate, fiscal or tax measures that have regressive impacts on human rights. Additionally, all business enterprises, including tax advisors and financial institutions, need to ensure that their tax planning strategies and services do not negatively impact human rights.
For more information on taxation and the SDGs, and recommendations on how countries can reform their tax policies to maximise domestic resource mobilisation, see the Danish Institute for Human Rights’ Means of Implementation.
The International Covenant on Economic, Social and Cultural Rights (ICESCR) states that ‘[e]ach State Party to the present Covenant undertakes to take steps, individually and through international assistance and co-operation, especially economic and technical, to the maximum of its available resources, with a view to achieving progressively the full realization of the rights recognized in the present Covenant by all appropriate means, including particularly the adoption of legislative measures.’ States therefore should ensure their domestic resource mobilization is fit for purpose. ICESCR Article 11 on the right to a decent standard of living, provides that ‘States Parties will take appropriate steps to ensure the realization of this right, recognizing to this effect the essential importance of international co-operation.’
The Committee on Economic, Social and Cultural Rights noted in its 2017 General Comment No. 24 that States should ensure that corporate strategies do not undermine their efforts to fully realise the rights set out in the Covenant. The General Comment also states in paragraph 37 that “to combat abusive tax practices by transnational corporations, States should […] deepen international tax cooperation” and that developed countries should impose “a minimum corporate income tax rate” seeing that “lowering the rates of corporate tax solely with a 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.”
The need for improved domestic resource mobilization is stressed in the Addis Ababa Action Agenda on Financing for Development (AAAA), which is a global framework for financing post-2015 development, including the 2030 Agenda. The agreement was reached by 193 UN Member States who commit to enhancing revenue administration by improving fairness, transparency, efficiency and effectiveness of tax systems. Therefore, the concrete actions agreed in the AAAA provide the foundation for a revitalized global partnership for financing a sustainable development that leaves no one behind.
There are several concrete measures that states can take to tackle tax evasion and avoidance and to ensure that business enterprises pay their fair share of taxes to raise revenue in order to meet human rights obligations as well as to promote sustainable development:
Improving financial transparency by engaging in automatic exchange of financial information to improve transparency and fights tax evasion and avoidance, including through the OECD led Common Reporting Standard.
Introducing a register of the ultimate beneficial ownership of companies, trusts, and foundations incorporated or registered in their jurisdiction that is comprehensive, public, free-to-use, and contains up-to-date verified information.
Ensuring that multinational companies headquartered in their jurisdiction file a Country-By-Country report (CBCr) which, as a minimum, should meet the OECD’s standards for CBC reporting.
Publishing on an annual basis which companies are benefiting from statutory tax incentives (i.e. incentives that all companies operating, for example, within a certain sector or in a certain location can access) and discretionary tax incentives (i.e. incentives that are negotiated with individual companies and are accessible only to them), and how much they cost the state. States should review their tax incentives with a view to cancelling or phasing out those that are deemed harmful to the state’s ability to raise enough revenue to meet its human rights obligations, and should as far as possible avoid granting discretionary tax incentives.
Ensuring that a state’s tax authorities are well-resourced, well trained, and have the necessary legal underpinnings and administrative, and technological tools to fulfil their mandate effectively. Tax authorities should also be independent from all branches of government.
In addition to the measures listed above, states can also promote increased revenue collection for protecting and fulfilling human rights by:
Ensuring that wealth taxes are enforced in a progressive manner, so that those most able to pay taxes also do so. This includes taxes on the appreciation of wealth – such as capital gains taxes; the transfer of wealth – such as inheritance taxes; and the holding of wealth – such as ongoing property taxes.
Ensuring consumption taxes – such as Value Added Tax and excise taxes – are implemented in a way which does not put a disproportionate tax burden on poor and vulnerable socio-economic groups. This can be done by exempting or zero rating items consumed predominantly by the poor while raising rates on items consumed mainly by richer segments of society. States should also consider the potential to utilise excise taxes for wider human rights and SDG related policy objectives – such as improving public health or reducing carbon emissions – as well as for revenue purposes.
Ensuring their tax treaty networks do not provide opportunities for multinational business enterprises to avoid paying taxes altogether by manipulating mismatches in tax treaties around the world. This should include cancelling tax treaties with tax havens; introduce robust anti-abuse clauses in all existing tax treaties; and ensure provisions regulating e.g. withholding taxes on cross-border transactions such as dividend, interest and management fee payments as to not provide incentives for companies to artificially re-route such transactions to take advantage of lower rates.
It is also important to ensure that tax policy efforts do not have unwanted consequences, such as gender discrimination. GIZ warns that “[i]n order to promote sustainable economic growth and poverty reduction, development efforts must ensure that policy interventions in the area of taxation do not negatively affect desired outcomes in the area of gender equality.” To overcome this, they advise that “[m]ainstreaming a gender equality perspective into general tax policy analysis can significantly improve the quality of public policy.”
SDG target 17.1 requires states to ‘strengthen domestic resource mobilization, including through international support to developing countries, to improve domestic capacity for tax and other revenue collection.’ The two specific indicators focus on total government revenue as a proportion of Gross Domestic Product (GDP), and the proportion of domestic budget funded by domestic taxes.
SDG target 17.1 focuses mainly on quantitative variables (such as the revenue-to-GDP ratio[1]). However, the way that the money is raised will also have an impact on sustainable development and the fulfilment of human rights. A well-designed tax system can help ensure that those better able to pay also contribute more and can help avoid that the burden of taxation falls disproportionately on poorer segments of society. Efficient and fair tax systems also encourage better tax morale and can be an important component in state and institution building and are thus relevant for the achievement of the SDGs as a whole.
The 2030 Agenda’s commitment to improved domestic resource mobilisation is reaffirmed in the Addis Ababa Action Agenda (AAAA), which among other things commits to: ending harmful tax practices; enhancing revenue administration through modernized, progressive tax systems, improved tax policy and more efficient tax collection; and ensuring that sure that all companies, including multinationals, pay taxes to the Governments of countries where economic activity occurs and value is created.
[1] This measures a government’s total revenues from e.g. tax as a percentage of the total Gross Domestic Product (GDP) of the country.
III. First National Action Plan on Business and Human Rights in Chile
Normative Framework (page 20)
Business enterprises are basic economic units in society which, through their activity, may generate a series of positive impacts on society such as the creation of employment and payment of taxes which, in turn, allows the State to invest public money in the realisation of human rights.
i. Fundamental Pillar 1: The State’s obligation to protect human rights
(…)
Strand 2 [Eje nº 2]: Encourage the creation of regulations and strategies that promote respect for human rights in the development of business activities.
(…)
The Ministry of Culture [Mincultura] will promote the protection of human rights in the entrepreneurship that benefits from the tax and financing strategies located in the framework of the Orange Economy policy [Economía Naranja].
“The diversity of legal systems can be a good thing as it is an opportunity to explore new avenues and it motivates governments to improve regulation. Yet if a country is too lax in the way it devises its rules, a competitive advantage becomes a threat. A fragmented and inconsistent legal regime can spawn unwelcome developments – tax avoidance (“aggressive tax planning”) for one thing, and human rights abuses for another.”
Most serious infringements of working conditions [page 16}
“Those working in other people’s households are another risk group. Such actions have fallout for employees, for the state (which is robbed of taxes and insurance contributions), and for honest businesses, who cannot compete with such labour.”
Government covering note on the UN Guiding Principles on Business and Human Rights National Action Plan
Ownership policy and social responsibility
“Companies with a controlling interest held by the State assess the human rights risks of their own operations and those of their subcontractor chains, reporting on them and their own tax procedures. In doing follow-up work on the operating principles of social responsibility, consideration should be given together with companies and other stakeholders on how models developed in ownership steering could also be applied in other company functions.”
The Agence Française de Développement (AFD) [page 28]
… Currently, the AFD does not apply Article 5 of Chapter III of the Act on France’s strategy for development and international solidarity, in particular the requirement to implement measures promoting the financial transparency of businesses involved in operations, country by country. Instead, the financial operators and private sector actors with which the AFD Group and PROPARCO work are encouraged to disclose information on their turnover, profits, employee numbers and taxes paid in each country they are based in. This measure, called “country-by-country reporting”, is already compulsory for European banks.
“Following the reform of procurement law in 2016, with which three new EU procurement directives were transposed into German law, the new Part IV of the Restraints of Competition Act lays particular emphasis on observance of the law, especially taxation, labour and social legislation (sections 97(3) and 128(1) of the Act).”
IV. Italian ongoing activities and future commitments
Administrative liability of companies
“The Ministry of Justice has recently set up a working group with the CNPDS (National Centre for Prevention and Social Defence Foundation), Confindustria and Assonime (…) In particular, the working group intends to propose solutions to remedy the following critical aspects of the current legislation:
– lack of legislative recognition about procedural collaboration from companies (e.g. probation as for US DPA and NPA), against the introduction of non-accountability of physical persons (e.g. in tax crimes and crimes against the public administration)” (p. 17)
Tax revenue is the most important, reliable and sustainable means of resourcing initiatives that contribute to the realisation of human rights such as health and education. Businesses are significant contributors to tax revenue. The Kenya Revenue Authority Act, 1995 provides that domestic revenue is derived from several sources including taxes, duties, fees, levies, charges, penalties, fines or other monies and are collected from individuals, private and public businesses by different entities at national and county level.
Tax justice and the regulation of financial behaviour of companies can no longer be treated in isolation from the corporate responsibility to respect human rights, outlined in the UNGPs and business commitments to support the SDGs. Indeed, the SDGs include specific targets on reducing illicit financial flows (IFFs), returning stolen assets, reduction of corruption, and strengthening domestic resource mobilisation. In this respect, Goal 16 on the promotion of peaceful and inclusive societies includes specific targets on reducing illicit financial flows (target 16.4), corruption (target 16.5), Goal 17 on strengthening implementation and partnerships, target 17.1, provides for the strengthening of domestic resource mobilisation, including through international support to developing countries, to improve domestic capacity for tax and other revenue collection.
Like in many jurisdictions, Kenya faces challenges concerning revenue mobilisation and the link to business activities, among them IFFs, tax avoidance and tax evasion by businesses. These practices result in reduction of the resources available for investment in essential social services fostering inequalities, undermining economic and social institutions and discouraging transparency in matters of public finances. The Kenya Government has enacted legislation to address these practices, including the Anti-Corruption and Economic Crimes Act, the Bribery Act, 2016, and amendments in 2017 to the Proceeds of Crime and Anti-Money Laundering Act, 2009 (POCAMLA).
The 2017 amendments to the Proceeds of Crime and Anti-Money Laundering Act, 2009 establish the Financial Reporting Centre (FRC), an independent financial intelligence agency charged with combating money laundering and identifying proceeds of crime including tax evasion. The Ethics and Anti-Corruption Commission Act, 2012 creates the Ethics and Anti-Corruption Commission (EACC) whose mandate is to combat and prevent corruption and economic crimes set out in the Anti-Corruption and Economic Crimes Act. The Bribery Act, 2016 seeks to address the supply side of corruption by placing a duty on businesses to put in place appropriate measures relative to their size, scale and nature of operations towards the prevention of bribery and corruption, and also requires any person holding a position of authority in a business to report any knowledge or suspicion of bribery within twenty-four hours. Kenya is also party to international and regional initiatives on combating bribery and corruption.
Despite the above efforts, the NAP consultations identified several challenges that affect revenue transparency:
Corruption in the process of revenue collection and the management of public revenue. Stakeholders identified corruption in the business licensing process, the process of tax collection and public procurement attributed to both public and private sector actors.
Lack of disclosure of contracts particularly those that have significant economic and social consequences.
Lack of transparency in administration and management of revenues from the exploitation of natural resources including from mining and oil and gas activities.
The absence of legal beneficial ownership disclosure aids the veil of secrecy in determining who owns and controls business entities inhibiting law enforcement’s ability to ‘follow the money’.
CHAPTER THREE POLICY ACTIONS
3.1. Pillar 1: The State Duty to Protect
Policy Actions [Page 18]
The Government will:
xii. Review current trade and investment promotion agreements and bring them into compliance with the Constitution and international human rights standards to ensure that they are not used to facilitate illicit financial flows and tax evasion by businesses.
CHAPTER FOUR: IMPLEMENTATION AND MONITORING
ANNEX 1: SUMMARY OF POLICY ACTIONS [Page 24]
Strategic Objective
Policy Actions
Key Actors
Strategic Objective 1:
Enhance existing policy, legal, regulatory and administrative framework for ensuring respect of human rights by business through legal review and development of specific guidance for business
Review current trade and investment promotion agreements and bring them in consonance with the Constitution and the state’s international human rights obligations.
Ministry of Trade and Industry, KRA, Financial Reporting Centre (FRC)
Objective 1: ensuring State’s duty to protect, defend and respect human rights
E. Measures related to international obligations [page 4]
2. “Accession to the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. The aim is to create conditions for the ratification of the Convention following Lithuania’s accession to the OECD. To successfully accede to this Convention, criminal legislation must contain a special rule providing for the liability of natural and legal persons for the bribery of foreign public officials in international business transactions. The legislation must also prohibit tax deductions from money obtained as bribes, irrespective of this money being accounted for in accordance with applicable legal requirements.”
“The government supports the growing number of international initiatives to promote transparency by means of tax disclosure. It takes an active part in discussions in the EU on a possible expansion of obligatory tax disclosure by companies operating internationally to include payments to countries where they are active. It urges attention for possible adverse economic consequences of making this information public, and for close harmonisation with existing transparency requirements.”
Pillar I: The state’s duty to protect human rights
Addition of general principles in administrative proceedings [page 22]:
On the grounds of tax law, the Constitutional Court9 has indicated that the public administration authorities should, in accordance with the principle of in dubio pro tributario, resolve interpretation doubts in favour of the taxpayer. On the other hand, in the context of the protection of the right to property, the Supreme Administrative Court has argued in favour of restrictive interference with the rights of the owner.10 There is no doubt that the principle of in dubio pro libertate permeates all administrative law.11 By extending this principle to the level of proceedings before administrative authorities, the provisions that are questionable should be interpreted in such a way that legitimate interests of citizens are not harmed.
Appendix 1
International non-binding mechanisms and international legal framework in force in Poland in relation to business and human rights [page 55]:
Corporate responsibility for infringements of international human rights standards/norms is provided for in non-binding mechanisms. In this respect, apart from the UN Guiding Principles on Business and Human Rights, the following documents should be mentioned: “The OECD Guidelines for Multinational Enterprises: rules for different areas, from employee relations, environmental issues, respect for human rights, and occupational safety, through issues of access to information, taxation, environmental protection, and due diligence in business. The OECD Guidelines contain a dispute settlement mechanism involving the possibility of submitting notifications to the OECD NCP on the infringement of the Guidelines. The OECD NCP examines the case and, provided it has grounds to do so, recommends mediation proceedings to the parties.
“Like other state-owned companies, Swedfund International AB (Swedfund) and the Swedish Export Credit Corporation (SEK) are required to comply with the government state ownership policy for CSR, as described above. Moreover, Swedfund and SEK have social mandates specially adopted by the Riksdag. Swedfund is required to ensure that its investments comply with international standards and CSR principles, within clear and sound corporate structures that do not contribute to tax evasion, money laundering or terrorist financing. SEK is required to take account of conditions such as the environment, corruption, human rights and working conditions in its credit assessments”
Annex: Measures planned [page 27]
Regulations and legislation
“An inquiry has presented further proposals for modern, effective and legally certain administrative proceedings. The continued development of administrative proceedings and specialisation for tax cases (Swedish Government Official Reports 2014:76) was presented in December 2014 and has been circulated for comment.”
3 The core content of the National Action Plan on Business and Human Rights
3.1 Action plan on labour
3.1.1 Overall situation
For the promotion of employment of the elderly, the Ministry of Labour has prepared legislation to issue an hourly minimum wage for elderly employees, and include plans to open a service centre for employment for the elderly. Tax incentives will be issued to encourage private sector agencies to hire elderly workers aged 60 years and over. Starting from the accounting period beginning on or after 1 January 2016 onwards, the private sector can file in their corporate income taxes an exemption of up to 100 percent of the money paid to senior employees in accordance with the Royal Decree on the Revenue Code regarding Tax Exemption (No. 639) 2017, which is in effect from 3 March 2017, and the Notification of the Director-General of the Revenue Department on Income Tax (No. 290) dated 14 March 2017. This measure is meant to support the elderly to have an opportunity to continue working and have sufficient post-retirement income, reducing social inequality and alleviating the government welfare budget burden on a long-term basis – as Thailand will enter the Aged Society in 2021.
3.1.3 Action Plan (2019–2022)
Pillar 1: State duties in protecting (Protect)
No.
Issues
Activities
Responsible agencies
Time-frame (2019–2022)
Indicators (wide frame)
Compliance with National Strategy/ SDGs/UNGPs
10.
Children of migrant workers
Encouraging establishments to organize childcare centres at work by registering as child service centres in the workplace with the Ministry of Social Development and Human Security. Such establishments will receive tax deductions and children of employees and workers are taken care of with proper development.
– Ministry of Social Development and Human Security
– Ministry of Labour
2019–2022
Number of establishments registered as a child service centre in the workplace
– National Strategy for Human Capital Development and Strengthening
– SDG 8 and 11
– UNGPs Articles 1, 3, 4, 5 and 7
3.2 Action plan for community, land, natural resources and the environment
3.2.1 Overview of the situation
The government has tried to solve problems by raising the level of competitiveness, promoting research and development, restructuring of economic and social structures such as tax structure (inheritance tax and land tax), setting up the rules of society to be secure and fair, promoting equality and opportunity to access public resources and services, promoting good governance, and eliminating corruption and patronage systems while in the short-term, implementing measures to help farmers and low-income people affected by the economy and disasters.
4. The promotion of implementation of the National Action Plan on Business and Human Rights and mechanisms for monitoring, follow-up and evaluation of the National Action Plan on Business and Human Rights
4.2 Examples of long-term activities (4 years)
10. Consider a study incentive for business such as tax incentives and other benefits as a way to encourage the business sector/state
Uganda has been consistently attracting the highest foreign direct investment (FDI) in East Africa by attracting between $250 – 300 million in FDI annually between 2010 and 2016 – largely due to its stable and consistent macro-economic policies including liberalization of business environment and tax incentives to investors in selected sectors like manufacturing, oil and gas and Energy (URA, 2019; a Guide on Tax Incentives/Exemptions Available to the Uganda Investors).
Stakeholders, particularly national business owners’ and private providers, noted that tax exemptions were not provided transparently and they were provided to large or foreign companies, making the State to lose needed revenue and causing unfair competition between those who receive and those who do not. The participants also noted that if tax exemptions/ tax incentives are to be granted, the business owners should demonstrate that the exemptions/ tax incentives are justified and their implementation will ensure deliberate, concrete and targeted steps to guarantee protection and fulfilment of human rights, particularly through employment creation and delivery of social services thus improving lives of the Ugandans. In addition, the exemptions should be monitored, their social benefits and the human rights compliance periodically assessed. The assessments should be informed by broad public participation, especially of individuals that are directly affected.
Revenue transparency particularly revenue in the extractives sector has become an increasing concern to the public. There has been a wider call for resources justice through arrangements such as Publish What You Pay (PWYP), the Natural Resources Charter, Extractives Industries transparency Initiative among others. The NAP consultations enlisted several challenges that affect revenue transparency. There is an inflow of investors operating in the districts but without licenses from the district authorities. This was typically raised in Karamoja region where many business owners in the mining sector emerge with mining licenses purportedly from Kampala and do not contribute any taxes to the local government authorities. This has led to reduction in local revenue collection as well as affected social service delivery to the communities.
Corruption is one of the major challenges leading to violation of human rights in business operations in Uganda. Many business operators reported corruption in procurement, acquisition of licenses and tax collection. Imprudent utilization of tax and other resources through corruption undermines positive outcomes of businesses in Uganda. This weakens the economic and social efforts of the government to provide services and even further discourages transparency in matters of business operations.
CHAPTER FIVE: INSTITUTIONAL FRAMEWORK
5.1 Ministry Of Gender, Labour and Social Development
(…)
viii. Mobilize resources for implementation of the action plan.
5.4 Business entities
(…)
vii. Pay taxes to the government.
5.5 Ministry of Finance, Planning and Economic Development
(…)
ii. Enact appropriate tax regimes.
5.9 Local Governments
(…)
x. Mobilize resources to implement the action plan.
The UK 2016 Updated NAP mentions tax in the section devoted to Myanmar Centre For Responsible Business in Burma [page 19], where it points to the tax evasion as being one of the important issues in the context of responsible business conduct:
“The media has turned to MCRB for comments on a range of responsible business issues which MCRB is using to shape debates on issues as diverse as tax evasion and environmental impacts, and to highlight international standards and key issues in Myanmar.”
