10 years after the adoption of the Guidelines by the UN, it is urgent to advance towards principles that address the massive scale and human rights impact of corporate tax abuse.
By: Olivia Minatta, Program Associate at CESR
"The UN Guiding Principles on Business and Human Rights are almost entirely silent on the question of taxation and tax avoidance by companies. It's time to move to the UN Guiding Principles 2.0, which will include tax justice, social inclusion, environmental sustainability, and the associated duties of companies."
-Olivier De Schutter, UN Special Rapporteur on Extreme Poverty and Human Rights.
Last year, Olivier De Schutter referred to the importance of the newly-launched Principles for Human Rights in Fiscal Policy as a framework for thinking about a new generation of work on business and human rights. 2021 marked the 10th Anniversary of the adoption of the Guiding Principles on Business and Human Rights ("the Guiding Principles") by the UN Human Rights Council, which was undoubtedly a landmark moment in the fight against corporate impunity and corporate abuse of human rights. However, despite the massive scale and impact of corporate tax abuse, they don’t mention the issue at all.
Tackling tax abuse by corporations is crucial both to ensure enough resources to finance rights and to promote robust and transparent democracies. Societies that allow companies not to pay their fair share, damage the most basic conceptions of the social contract and increase the sense of corporate capture of the State.
According to international human rights law, States have the obligation to mobilize all the resources at their disposal to immediately ensure minimum levels of rights, and move towards their full realization progressively and in a non-discriminatory way. One of the direct implications of this obligation - which are explained further in the Principles for Human Rights in Fiscal Policy - is that States must take concrete efforts to combat tax abuses. Improving the capacity of the States to prevent and sanction this type of maneuver is not only a way to mobilize resources but also contributes to the equity of the system, considering that a great part of tax abuses relate to personal and corporate income taxes which have great redistributive potential.
Since tax abuses occur in a highly globalized economy, the remedies necessarily require coordinated actions between countries. In this context, the international human rights framework and the collaborative initiatives that arise within it to guide States' action when regulating companies that operate both in the domestic arena and internationally are fundamental.
However, the silence of the Guiding Principles in tax matters is surprising, given the scale of corporate tax abuses, as recognized by the human rights treaty bodies, the Special Rapporteurs, and as revealed by the Paradise Papers, the Panama Papers, and more recently the Pandora Papers. This also contrasts with other initiatives at the UN, such as the commitments adopted in the Sustainable Development Goal 16, which calls in target 4 for a significant reduction in illicit financial flows, which include corporate tax abuses.
On the occasion of the 10-year anniversary of the Guiding Principles, CESR and allies participated in the preparatory events for the new 10-year roadmap on business and human rights in Latin America. Based on the Principles for Human Rights in Fiscal Policy, we pointed out the need for the Guiding Principles to advance in requiring adequate state regulations to combat the enormous tax avoidance and evasion that affects the region, as well as in recognizing more clearly the scope that the tax obligations of companies should have, according to the requirements of the human rights system. A clear example is to avoid abusing intra-group trade to shift profit and pay less in taxes.
Recognizing the limitations of the Guiding Principles, in December 2021 the global and regional road maps were launched with the aim of making them more effective and connected with the urgent problems of today's world. Based on the three main pillars of the Guiding Principles (state obligation to protect, corporate responsibility to respect, and duty to remedy) and with an emphasis on "tackling inequalities and realizing a just transition and a sustainable future for all", the global road map poses different objectives and lines of action for state and business actors. The issue of taxation is flagged as an important global policy agenda that should be integrated into the Principles.
The regional roadmap for Latin America maintains the same objectives and areas of action as the global route, but partly thanks to the contributions of CESR and allies, it goes further in outlining in a more specific way the fiscal implications that should be present in the business and human rights agenda. For example, drawing on Principle 14 of the Principles for Human Rights in Fiscal Policy, the regional roadmap calls on companies to "comply with the letter and spirit of tax regulations and refraining from formulating, adopting, recommending or financing actions, policies, programs or practices that directly or indirectly obstruct the enjoyment of human rights".
Although we welcome the inclusion of these tax references in the regional roadmap for the next 10 years, we believe that progress is still needed towards a more robust recognition of the tax implications of business activities from a human rights perspective. In particular:
Due diligence standards should include adequate mechanisms to identify, prevent and mitigate the risks of human rights violations derived from their tax practices.
States should review and adapt the standards of public or private law in financial, accounting, tax, or fiscal matters to the normative framework of international human rights law.
States should conduct regular and transparent assessments of the impact that tax incentives that benefit companies have on human rights
States should establish legal and institutional mechanisms for the release of tax information by companies, complying with at least the most exhaustive international standards on the matter, permanently updating their legislation and institutional practices to new standards.
States should adopt measures to combat the "race to the bottom" caused by their investment policies and avoid the potential violations of their extraterritorial obligations to respect and protect the human rights
We hope that the roadmaps, which are open for more comments and observations until May 2022, will advance in this direction and be useful to move towards a "Guiding Principles 2.0" which can truly reflect the immense damage that corporations do to equality and human rights when they avoid or evade taxes, or distort tax systems.