How Tax Abuse and Human Rights are More Closely Related Than You Think
By Grace Zhao, June 30, 2014
Tax abuse has a significantly negative effect on the enjoyment of human rights.
It is a large issue that is not often associated with humanitarian causes. Often tax abuse is perceived to only impact those on the extremes: the super rich and the miscellaneous rogues who run a money-laundering scheme out of their basements.
Yet aspects of tax abuses from secrecy jurisdictions and tax evasion to offshore bank accounts all contribute to increasing income inequality regardless of legality. Such inequality skews political power, which then has an undeniable impact on the availability of basic human rights to food, water, and shelter.
Tax abuse is not simply a clandestine activity, rather it is also actively sanctioned by governments through secrecy jurisdictions and other moves such as corporately lobbied tax holidays, both of which contribute to increased inequality and deeper poverty. These then violate the principle that governments should maximize efforts to provide basic human rights. In other words, tax abuse can constitute as grand theft that robs governments and institutions of the ability to effectively provide for human rights.
According to The Tax Justice Network,
Tax haven governments purposefully, knowingly and deliberately create laws, regulations and secrecy measures that deprive the people and governments of other countries of the revenues they need to deliver on their human rights commitments.
A recent IMF paper entitled “Spillovers in International Corporate Taxation” suggests that tax abuse impacts developing countries the most, leading to increasing global inequality and poverty. The paper addresses the “spillover” effects of tax policies on other countries. Spillover effects are often in the range of billions of dollars and greatly impact the revenue of developing countries. These effects are more often than not drain the economy of developing countries.
The spillover base effect is largest for developing countries. Compared to OECD countries, the base spillovers from others’ tax rates are two to three times larger, and statistically more significant. . . . The apparent revenue loss from spillovers. . . is also largest for developing countries.
The negative effect of tax avoidance leads to increased economic disparities. As Eric LeCompte, Executive Director of Jubilee USA Network stated:
The developing world loses more in corporate tax avoidance than it receives in aid from developed countries.”The paper shows that when multinational corporations shift their profits to another country to pay less taxes, we see higher levels of global inequality.
The International Bar Association’s Humans Rights Institute report entitled “Tax Abuses, Poverty and Human Rights” written and researched by an Illicit Financial Flows, Poverty and Human Rights Task Force takes the analysis of tax avoidance and poverty one step further by directly implicating tax abuse in human rights violations. Using careful definitions of human rights, the yearlong study also concluded with three main arguments:
- States are obligated to prevent tax abuses at the domestic and international level and ought to cooperate with multinational institutions.
- Businesses have a responsibility to avoid negative impacts on human rights caused by tax abuses.
- The legal industry should assist states and business fight the negative impact of tax abuse on human rights.
Tax abuse and human rights are definitely not mutually exclusive. Yet some may argue that governments could always be doing something better. Couldn’t any problem be related to human rights? So why is tax abuse any more important than any other issue? It is too easy brush off the correlation between human rights and tax abuse and generalize it into a vague issue of government irresponsibility and lack of resources. Yet the truth is that tax abuse is something that can be targeted directly. It is a recognizable and even tangible problem with documented trillions of dollars in floating around. Yes, tax abuse is intrinsically related to human rights. If we demand to see change in the realm of human rights, then we ought to actually do something. Let’s start by ending tax abuse.