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Preventing tax abuses: A human rights duty

Tax abuses deprive governments of the resources required to provide the programmes that give effect to economic, social and cultural rights, and to create and strengthen the institutions that uphold civil and political rights, according to a new report issued by a group of experts commissioned by the International Bar Association.

The report, “Tax Abuses, Poverty and Human Rights,” was prepared by the International Bar Association’s Human Rights Institute Task Force on Illicit Financial Flows, Poverty and Human Rights and involved extensive consultations with, among others, representatives from corporations, tax lawyers, civil society, academics and tax authorities.

Actions of states that encourage or facilitate tax abuses, or that deliberately frustrate the efforts of other states to counter tax abuses, could constitute a violation of their international human rights obligations, particularly with respect to economic, social and cultural rights, the document said.

The International Bar Association set up the Task Force to reflect from a human rights law perspective on a number of questions such as: Where to draw the line between legal tax avoidance and illegal tax evasion?  What types of tax structures and transactions have the greatest impact on the revenues of developing and developed countries? What are the most effective reforms required to confront tax abuses? What are the responsibilities of states and business enterprises to implement those reforms?

One of the reasons why tax abuses are becoming so much under scrutiny, the report says, are their ethical dimensions. Politicians, advocacy groups and prominent individuals are questioning the fairness and morality of sophisticated tax planning strategies that result in individuals and corporations not paying a fair share of tax or not paying taxes at all. This is especially so in a context of persistent poverty and

rising inequality between and within nations. The report refers to the Guiding Principles on Extreme Poverty and Human Rights, adopted by the UN Human Rights Council in 2012, which detail how poverty is connected as a cause or consequence to violations of 14 different human rights.

Against that backdrop, reports that such tax strategies help large corporations reduce their tax bills or avoid paying taxes altogether, even if the maneuvers they use to do are legal, are becoming less tolerable.

In the developing world, the Task Force identified as practices giving rise to greatest concerns those of transfer pricing and other cross-border intra-group transactions; the negotiation of tax holidays and incentives; the taxation of natural resources; and the use of offshore investment accounts.

States have an obligation of international cooperation and technical assistance to support the realisation of human rights, which should be understood to extend into international cooperation in the field of taxation.

The report said that States have the obligation to ensure coherence between corporate, fiscal, tax and human rights laws and policies, both at the domestic and international levels. This includes the corollary obligations to avoid corporate, fiscal or tax measures that have retrogressive impacts on human rights.

Business enterprises were also addressed in the document, which called for them to ensure that they followed due diligence procedures to ensure they do not have negative impacts on human rights. Both, the enterprises and their advisors, “need to understand that their tax planning strategies have potential negative impacts on human rights,” it stated.

Momentum for reforms to enable governments to raise their fair share of taxes grow in the international agenda is growing. For instance, last the Group of 20 recently called for progress on tackling “base erosion and profit shifting,” a generic name to designate the strategies used by transnational companies to minimize tax payments.

At the same time, human rights mechanisms, as well as experts and academics, are beginning to give more attention to the meaning of the human rights obligations of States for their policies on taxation. The Human Rights Council will, indeed, have a chance this year to consider a report that the Special Rapporteur on Human Rights and Extreme Poverty will submit to it on this matter.

Read the full report.

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May 2017
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