Tax abuse and human rights: closing the gap between what’s legal and what’s just.

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The trove of recently-leaked documents known as the “Paradise Papers” have once again exposed the scale of tax avoidance by some of the world’s most powerful people and companies, and the role of secretive offshore financial centers in facilitating it. Although some have questioned the importance of the leak by suggesting the activities exposed are “not illegal,” the legality and ubiquity of such practices is in fact precisely the scandal. The revelations in the Paradise Papers reinforce the urgent need for governments to collectively tackle corporate tax avoidance, and to make illegal what is inherently unjust.

Much attention has focused on the tax dodging practices employed by specific institutions —from Apple to the UK monarchy—to preserve their economic and social privilege. With some exceptions, there has been less attention to the impact that cross-border tax abuse has on the economic and social rights of ordinary people worldwide. 

All countries lose precious government revenue from this phenomenon, most particularly low-income countries. As a current Oxfam campaign video highlights all too vividly, this plunder of the public purse robs governments of billions of dollars of resources they could use to ensure access to essential public services such as health, education and housing, contributing to chronic human rights deprivations with often life-threatening consequences. Alongside strong civil society pressure to ensure fiscal accountability domestically, tackling international tax avoidance could be a real boon for human rights around the world. 

Tax dodging by the rich and powerful is also a key factor fueling the dramatic rise in inequality—with the richest 1% now owning half the planet’s wealth. Again, the impacts are felt most acutely by already-disadvantaged people, such as women, who rely more heavily on public services and can’t hire expensive accountants to shield their wealth. CESR’s research has highlighted the role tax abuse plays in fueling inequality and deprivation in low, middle and high income countries, including those undergoing fiscal austerity such as BrazilEgyptZambia and Spain

 

Collective action problems require a global response 

As a truly transnational problem, tackling tax abuse requires a concerted global response. A concrete agenda for reforming the broken global tax system has long been advanced by tax justice campaigners. Some important commitments have been made by the governments of the Global North and Global South, yet these forums are dominated by the same rich countries who are frequently implicated in skewing the system. Unsurprisingly, advances have been piecemeal and fallen short of the reforms required. Concerted action is now needed through more inclusive governance bodies such as those of the UN, with the Paradise Papers prompting a demand for world leaders to forge an international convention ending cross-border tax abuse and financial secrecy. 

The Sustainable Development Goals (SDGs) adopted by UN member states in 2015 are another key entry point for global action. They include an important universal commitment (target 16.4) to significantly reduce “illicit financial flows” (IFFs)—including cross-border tax abuse—as a development and governance priority. However, even this hard-fought commitment is at risk of being unraveled by politically-motivated attempts to narrow the IFF definition in the target and indicator used to measure progress. 

Over the last several months, there has been an alarming push to limit the IFFs measured in the context of SDG monitoring to strictly illegal tax evasion. As recently as last week’s discussions around target 16.4 at the “Inter-agency and Expert Group” in Bahrain, attempts have been made to exclude practices such as abusive transfer pricing, which occurs in a legal grey zone but has equally harmful human rights impacts. High-income countries, whose companies arguably benefit the most from tax abuse, have sought to focus the SDG debate on domestic resource mobilization in developing countries without regard to their own role in draining and de-mobilizing these very revenues.

Given the human rights harm at stake, it is critically important to include corporate tax avoidance in efforts to tackle IFFs. CESR was very active in the SDG negotiations and can testify that the SDG “framers’” clear intent for target 16.4 was to tackle the various policies which most undermine fiscal space and financial accountability. This was based on a growing recognition that corporate tax abuse was an inhibiting factor to sustainable development. 

The need to track all countries’ contributions to sustainable development, in the wake of the very skewed MDGs which placed nearly all the burden on poor countries, is also an important part of the context. Part of the success of the SDGs was that they balance the long-standing interests of governments from both the Global North and South. Targeting the degree to which rich countries are undermining domestic revenue mobilization was an essential lynchpin of the whole SDG negotiations. Putting that caveat at risk might also unravel this hard-fought diplomatic victory and undermine SDG implementation.

If the IFF definition is watered down, we would also lose a critical entry point for monitoring the  responsibilities and impacts of wealthy countries, and a crucial opportunity to track governments’ policies toward fighting corporate tax avoidance. The SDGs represent progress  toward greater transformation, transparency and accountability. Why backslide and decrease avenues for financial accountability—just because some government’s laws on the books are flawed?  

 

Bringing human rights to the struggle for tax justice

At CESR we are working with our tax justice and development allies to bring human rights tools and arguments to bear in the fight against tax abuse and to hold states accountable for the human rights deprivations such injustice causes.

As CESR’s Executive Director, Ignacio Saiz, argued at the recent Financial Transparency Conference in Helsinki, appealing to human rights can advance the struggle for tax justice in at least three ways. It can help shift the narrative on the need to combat tax abuse, it can strengthen the normative framework for curbing it, and it can open up new avenues for holding governments and companies to account for the deprivations that tax abuse can entail.  As our work in the Andean region has shown, framing tax justice as a human rights issue also has enormous potential to broaden alliances with the diverse social justice movements that also address  distributive injustice—such as the struggles for racial equality, indigenous and disability rights.

 The SDGs and the “Paradise Papers” revelations open an opportunity for more concerted global action against the scourge of tax abuse across different strands of advocacy. In their wake, CESR will be redoubling its efforts to engage the narratives, norms and strategies of human rights to bring about a meaningful breakthrough in financial transparency and accountability.

 

Globe image of countries linked to tax avoidance via the Paradise Papers courtesy of JayCoop 

 

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