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Race to bottom breaches human rights
Indonesia’s tax policy must be considered as an object for human rights scrutiny.
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Indonesia’s tax policy must be considered as an object for human rights scrutiny. (Shutterstock/File)
T
he UN Committee on Economic, Social and Cultural Rights (ESCR) has released its General Comment No. 24. This recent authoritative interpretation of human rights obligations of the state in the context of business activities is a significant development since the UN Guiding Principles on Business and Human Rights were adopted in 2011.
Many issues are addressed in the comment, including trade and investment, business incentives, supply chain, natural resources contracts and privatization. But one of the progressive comments that is in keeping with current global affairs is related to the unfair taxation system.
The committee highlights two main opinions regarding taxation a system. First, enforcing progressive taxation schemes is encouraged to maximize a mobilization of resources for human rights fulfillment.
Second, the practice of tax competition by imposing a minimum corporation tax rate, providing room for and permissive rules to tax evasion, tax avoidance and excessive protection to bank secrecy is not only inconsistent with the responsibility of states to develop international cooperation to fulfill human rights, but also undermines the ability of a state to mobilize resources to realize economic, social and cultural rights.
Regarding tax competition, the committee affirms that “lowering the rates of corporate taxes with a sole view to attracting investors encourages a race to the bottom that ultimately undermines the ability of all states to mobilize resources domestically to realize the covenant rights.”
In addition, the committee’s comment also underlines that even if countries choose not to raise taxes on corporations, and instead amply fund public services through other forms of taxation, their actions impact on the ability of other states to raise a tax.
By this reason, therefore, the obligation of states to address the adverse impact of an unfair taxation system moves beyond its traditional domestic jurisdiction. In other words, the states have an extraterritorial obligation to respect, protect and fulfill the covenant, as previously suggested by the Maastricht Principles.
