Last week in the wake of the Paradise Papers scandal Mark Goldring explained how tax dodging deprives already deprived people of basic services like access to water, education and healthcare. But, how does tax affect human rights? Here, Alex May argues that tax dodging can also be seen as a human rights violation.
What is tax dodging?
Corporations and wealthy people dodge a lot of tax, whether that is by moving money offshore and out of one tax jurisdiction into another where they will pay less in tax, or through transfer (mis)pricing whereby the value of goods exchanged is mis-represented, or by making deals with governments to pay less tax.
It is understandable to want to pay less tax. ‘Tax avoidance’ is the term for legal (at least technically legal) reductions of tax liabilities. ‘Tax evasion’ describes the illegal (and usually also deeply immoral) version of breaking the law to not pay tax. This distinction is messy and unclear, and just because something is technically lawful does not make it fair or ethically acceptable, especially given imbalances of power in negotiating tax deals.
The International Bar Association’s report on Tax Abuses, Poverty and Human Rights talks of ‘tax abuses’. This recognises that particularly aggressive tax avoidance, while technically lawful, is nonetheless morally wrong. One of the companies implicated in the Paradise Papers, Appleby, said that they ‘are a law firm which advises clients on legitimate and lawful ways to conduct their business’. But what about fair ways to conduct a business? Business activity and other incomes should contribute fairly to society, not just leech from it.
The role of the State: taxation and realising human rights
Tax policy is human rights policy. Tax is not just an economic issue of GDP and deficits, but also about public services and redistribution. A human rights approach helps to bring the moral dimension clearly to the surface, as part of an internationally recognised framework.
States have an obligation under the Convention on Economic, Social and Cultural Rights to work towards greater realisation of human rights. The rights under this convention include an adequate standard of living, education, housing, food, healthcare and cultural activities. Unfortunately, Western culture tends to focus on civil and political rights and overlook the other aspects of human rights.
Article 2(1) says that states must take steps, ‘to the maximum of [their] available resources’, to achieve progressively the full realisation of the recognised human rights. This is a strong obligation, although it includes the recognition that it is a process over time. The achievement of most economic and social rights requires significant resources, so the amount of tax income available to governments affects how much this can be done.
‘is the state doing the best it can to realise human rights, or is it giving tax breaks to corporations and the rich while cutting public services?’Tax policies can be assessed by the ‘maximum available resources’ standard: is the state doing the best it can to realise human rights, or is it giving tax breaks to corporations and the rich while cutting public services? The UN Committee on Economic, Social and Cultural Rights commented on the UK’s tax policy in 2016, as part of the periodic review under the Convention. It expressed concern over the adverse impact that tax changes, such as reducing corporation tax and increasing VAT, had on the UK’s ‘ability to address persistent social inequality and to collect sufficient resources to achieve the full realization of economic, social and cultural rights for the benefit of disadvantaged and marginalized individuals and groups.’
As well as the general tax policy, we can also ask whether the State’s actions to tackle tax evasion and tax avoidance are sufficient to count as ‘maximum available resources’.
Business and human rights
Business enterprises also have a responsibility to respect human rights. The UN Guiding Principles on Business and Human Rights (UNGPs) make it explicit: ‘Business Enterprises should respect Human Rights’ (Article 11). Though not legally binding, it is an international instrument which has been endorsed by the UN Human Rights council. This is a significant recognition of the moral responsibilities which corporations have.
The responsibility to respect human rights is a ‘do no harm’ responsibility to not infringe upon the human rights of others or do things which have ‘adverse human rights impacts’.
By depriving states of tax revenues which they ought to have, tax abuses infringe on the human rights of those who would and should have benefited. The question remains of how much tax this is. The OECD Guidelines for Multinational Enterprises are helpful here: they say that enterprises should comply with ‘both the letter and spirit of the tax laws’. Complying with the spirit of the law means ‘discerning and following the intention of the legislature’. This shifts us away from technical legality to look at whether the tax system is being abused.
Arguments based on human rights can also be made which go beyond the UNGP’s ‘do no harm’ approach. Once we look at moral obligations it ought not be uncontroversial to say that corporations should pay a fair share of tax in every country in which they benefit from economic activity. What a ‘fair share’ amounts to is open to debate, but in many cases may well be higher than the amount required by law.