TACKLING CROSS-BORDER TAX ABUSE THROUGH HUMAN RIGHTS UN Human Rights Council Advisory Committee

1. TACKLING CROSS-BORDER TAX ABUSE THROUGH HUMAN RIGHTS UN Human Rights Council Advisory Committee 9 August 2016 | Palais de Nations

2. 1 WHY HUMAN RIGHTS IN INT’L TAX POLICY? HUMAN RIGHTS OBLIGATIONS ON TAX COOPERATION FROM OBLIGATION TO IMPLEMENTATION

3. TAX & HUMAN RIGHTS: Old foundations French Declaration of the Rights of Man and Citizen (1789) 13. For the maintenance of the public force and for the expenses of administration a common tax is indispensable; it must be assessed equallyon all citizens in proportion to their means. 14. Citizens have the right to ascertain by themselves or through their representatives the necessity of the public tax, to consent to it freely, to supervise its use, and to determine its quota, assessment, payment, and duration.

4. Human rights relevant to all four “R”s of taxation • Revenue mobilization • Redistribution to combat poverty and inequality • Representativeness and accountability • Re-pricing and regulation (e.g. penalties against pollution, excise taxes on smoking, transaction tax on high-freq. trading, property speculation, etc.)

5. Why human rights in tax policy? (In)sufficiency of resources?

6. Why human rights in tax policy? (In)equality of resources?

7. Why human rights in tax policy? Accountability of resources?

8. Human rights affected by tax policy Insufficient, inequitable and unaccountable public resourcing materially worsened by cross-border tax abuse.

9. What is cross-border tax abuse? Tax abusecan be defined as “tax practices that are contraryto the letter or spirit of domestic and international tax laws and policies … [with] negative impacts on the tax revenues and economies.” (International Bar Association Human Rights Initiative) Cross-border tax abuse refers to the exploitation of inter-State transactions by individuals or corporations to evade, avoid, or minimize due payment of taxes in ways which are harmful to the public purse. Three main sources: trade mis-invoicing, corporate tax avoidance and offshoring of personal income.

10. 1. Trade mis-invoicing [ADD GFI VISUAL] A form of corporate tax evasion based on fraud, and deliberate misreporting of the value of a customs transactions. Amount lost to public purse anywhere between $217 billion (developing countries only) to $692 billion per year (all countries) in fresh public revenue (Fitzgerald)

11. 2. Base erosion and profit-shifting / corporate tax avoidance Approx. $212 billion per year in developing countries and $500 billion in OECD countries (IMF) in direct public revenue from various cross-border tax avoidance techniques often described as base erosion and profit-shifting (BEPS).

12. 3.‘Offshoring” of taxable income and assets $189-288 billion lost in public revenue to untaxed asset holdings in tax havens $66-84 billion lost in developing countries (Henry/UNCTAD) Source: Financial Transparency Coalition & Christian Aid ...with disproportionate impacts in poorer countries

13. Who is responsible for enabling cross border tax abuse? Global barriers: • Off-shore financial secrecy countries actively facilitating tax evasion and avoidance, ‘selling secrecy’ • Tax competition, driving average statutory corporate tax rates worldwide down on average from 38% in 1993 to 24.9% in 2010. Effective CITs even lower. • Growing market for tax and regulatory avoidance Domestic barriers: • Weak tax collection and custom enforcement powers • Secretive often regressive tax incentives • Deficiencies in the enforcement of tax obligations • Insufficient application of progressive income and capital taxes • Low tax morale

14. Instructive case: Switzerland and women’s rights Switzerland’s outsized role in enabling tax abuse: • Bank secrecy sacrosanct, with few exceptions in public interest • Very little access by developing countries (or public) to taxpayer information, beneficial owners • Driving tax race to the bottom through preferential regimes, low tax rates • Highly effective tax advisor industry • Bilateral tax treaties increasingly limiting source country taxation of dividends, interest, royalties [ADD womens tights visuak]

15. Instructive case: Switzerland and women’s rights Financial secrecy undermines ability of other countries to mobilize public resources. • Health care, education, water and sanitation systems, social protection, effective courts with access to justice for all, free and fair elections, accountable police forces, etc. Arguably, everyhuman right requires resources to be realizable. • Disproportionate impacts on poorerwomen who are forced to: • Plug the gap in public services (education, healthcare, child, palliative and eldercare, water and fuel infrastructure) • Plug the gap in revenue through increased taxation on their families’ consumption (e.g. VAT) [ADD womens tights visuak]

16. 2 WHY HUMAN RIGHTS IN INT’L TAX POLICY? HUMAN RIGHTS OBLIGATIONS ON TAX COOPERATION FROM OBLIGATION TO IMPLEMENTATION

17. Human rights duties to combat cross-border tax abuse SDG target (16.4): “By 2030, significantly reduce illicit financial and arms flows, strengthen the recovery and return of stolen assets and combat all forms of organized crime.” Who is accountable? To whom? And for what?

18. Human rights duties to combat cross-border tax abuse Essential then to delineate respective (and concurrent) duties and responsibilities to cooperate to combat cross-border tax abuse. • Public actors, esp. enabling countries, ‘suppliers’ • Private actors, esp. MNCs, and tax avoidance ‘market-makers’: accts, tax lawyers, banks, wealth managers Sources of extraterritorial human rights obligations (ETOs) • UN Charter (Art. 55, 56) • ICESCR (Art. 2.1) • Other treaty and case law • Authoritative interpretation, e.g. Maastricht Principles From guiding principle of int’l tax competition to int’l tax cooperation with goal of sufficient, equitable and accountable public resourcing.

19. Human rights duties to combat cross-border tax abuse Maastricht Principles – Extraterritorial State duties to: • Respect: “Do No Harm” directly or indirectly by impairing the ability of another State to comply with its obligations or assisting another to breach them • Protect: take necessary measures to prevent abuses by business and other third parties which the territorial State is in aposition to regulate; ensure comps respect human rights • Help fulfill: create an international enabling environment, and cooperate to mobilize the maximum of available resources, (including int’l assistance) commensurate with capacity and available resources for the universal fulfillment of rights • Remedy: ensure availability of effective remedy for human rights abuse extraterritorially

20. 3 WHY HUMAN RIGHTS IN INT’L TAX POLICY? HUMAN RIGHTS DUTIES ON TAX COOPERATION FROM OBLIGATION TO IMPLEMENTATION

21. TAX & HUMAN RIGHTS: New frontiers

22. Applying human rights duties to cross-border tax abuse Duty to respect • Express: Implement international tax transparency and universal participation in re-writing of int’l tax rules inter-gov’tlly • Assess: Systematic human rights impact assessments of tax policies and practices by all G-20 countries on other countries • Address: Information and assessments must trigger action Duty to protect • Mandatory integrated reporting guidelines for large companies (and their tax planners and financial intermediaries), including on the human rights impacts of tax planning and financial arrangements. Accountability and Effective Remedy • Whistleblower and human rights defender protection • Sanctions for non-compliance in int’l tax cooperation regime, taking into acct capacity constraints of low-income countries • Redress harm done, e.g. guarantees of non-repetition, compensation and reparation for harms done

23. “Taxes formalize our obligations to each other. They define the inequalities we accept and those that we collectively seek to redress. They signify who is a member of our political community, how wide we draw the circle of ‘we.’” -Isaac William Martin

24. TAX & HUMAN RIGHTS: New frontiers UN Special Rapporteur Poverty “Tax policies reflect better than all of the ministerial statements and white papers the real priorities of a government. We can see clearly the activities that it chooses to incentivize, those that it opts to dis-incentivize, the groups that it decides to privilege, and the groups that it decides to ignore or even penalize. It makes no sense to say that human rights policies will be made by the human rights people, while tax policies will be made by the Finance Departments of the world, and the two will not interact.” “Without absolving any State of its obligation to raise the maximum available resources domestically to ensure the progressive realization of economic, social and cultural rights, there are limits to national-level actions in the absence of global reforms. Many States are undoubtedly hamstrung in their efforts to enact progressive taxation and combat illicit financial flows that could fight inequality and enhance the realization of economic, social and cultural rights.” A/HRC/26/28, ¶ 74 (May 22, 2014

25. TAX & HUMAN RIGHTS: New frontiers Lima Declaration on Tax & Human Rights, 2015 “Tax revenue is the most important, the most reliable and the most sustainable instrument to resource human rights...Taxation also plays a fundamental role in redistributing resources in ways that can prevent and redress gender, economic and other inequalities... Moreover, a just system of taxation can cement the bonds of accountability between the state and its people... tax policies can likewise counteract glaring market failures and protect global common goods – not least a healthy environment within planetary boundaries.”