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.+ Read more
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.
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). 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.
 This measures a government’s total revenues from e.g. tax as a percentage of the total Gross Domestic Product (GDP) of the country.