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Taxation

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.

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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.

Tax relates to the following Sustainable Development Goals

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References

No references.

What National Action Plans say on Taxation

Belgium

Chile

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.

Colombia

Czech Republic

Introduction [page 4]

“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.”

Denmark

Finland

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.”

France

I- The State’s Obligation to Protect Human Rights

The National Framework

13. The Role of Public Agencies

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.

Georgia

Germany

1.2 Public procurement

The current situation [page 22]

“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).”

Ireland

Italy

Lithuania

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.”

Luxembourg

Netherlands

3.4 Transparency and reporting [page 30]

Reporting

“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.”

Norway

Poland

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.

Slovenia

South Korea

Spain

Sweden

Annex: Measures taken [page 24]

The State as owner

“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.”

Switzerland

4. Position of the Federal Council on the Guiding Principles on Business and Human Rights

4.2 The Swiss context [page 6]:

Many Swiss companies are currently having to tackle a large number of challenges simultaneously: securing their competitiveness on the international markets, against the backdrop of the strong franc and the implementation of Corporate Tax Reform III and the Mass Immigration Initiative, investing in new technologies and human resources, and creating decent, well-qualified jobs in Switzerland and the wider world.

…

5. National Action Plan on Business and Human Rights

5.6 Relation to the Federal Council position paper on CSR [page 12]:

These include working conditions (including health safeguards), human rights, the environment, preventing corruption, fair competition, consumer interests, tax and transparency. The present report and NAP in fulfilment of postulate 12.3503 and the CSR position paper on corporate responsibility are therefore complementary and of equal status.

…

5.7 Pillar 1: state duty to protect

5.7.2 Operational Principles: legislative and information policy measures

Guiding Principle 3 [page 16]

PI5 Regulation of the manufacture and Import of Renewable Resources (biofuels)

The Mineral Oil Tax Act provides that biofuels (biogas, bioethanol, biodiesel and vegetable and animal-based oils) will be wholly or partly exempted from mineral oil tax if they satisfy minimum environmental and social requirements. Under the Mineral Oil Tax Ordinance, the minimum requirements for socially acceptable production conditions are fulfilled if, in the cultivation of the resources and production of fuels, business enterprises comply with the social legislation applicable at the production location, but at a minimum with the fundamental conventions of the ILO. he criteria were toughened up further with the implementation of parliamentary initiative 09.499 Agrotreibstoffe. Indirekte Auswirkungen berücksichtigen [‘Agrofuels: considering the indirect impacts’]. In the future (cf. Art. 12b para. 3 MinOTA), the Federal Council will have the right to refuse the tax exemption if biofuels have been produced in a country which does not have food security. Furthermore, the area used for cultivating the resources used to produce biofuels must have been acquired lawfully, to prevent the displacement or dispossession of the local population. Should biofuels which do not fulfil the criteria for tax relief enter circulation in large quantities in Switzerland in the future, the Federal Council may make them subject to an authorization requirement.

United Kingdom

The UK 2013 NAP makes no reference to tax.

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.”