Opinion: Decolonizing the global tax system to realize human rights

Publish Date: 
Friday, December 10, 2021

Low- and middle-income countries around the world are, in particular, scrambling for resources to deal with the surge in cases being reported of the new COVID variants amid discriminative and unwarranted travel bans and restrictions.

The pandemic has exposed not only the failures of the current global economic order dominated by the system of capitalism, of which tax havens and tax abuse disguised as tax minimisation strategies and wealth or asset management are a major component, but also widened the pre-existing socio-economic inequalities between rich and poor countries even further. The alarming revenue gaps plaguing countries in the global South is more than just numbers. They are indicative of the urgently needed investment in public services and provisioning of those services to realizing the rights of the most vulnerable communities.

It is not unsurprising that wealthy individuals and multinational companies like Amazon, Facebook and others have in fact profited off of the pandemic while workers across the world continue to suffer and their labor rights violated. The recent release of the Pandora Papers  reaffirms the International Network for Economic, Social and Cultural Rights- ESCR-Net’s concern around Tax Havens which exacerbated during the pandemic and the role they play in perpetuating inequality and poverty around the world. As multinational companies avoid paying their fair share of taxes, countries continue to lose the much needed revenue that could otherwise be used to provide basic services, invest in social protection and other investments essential to rights.

The continued lack of domestic revenue has also led governments to turn to unsustainable means of raising revenue mainly by increasing consumption tax rates (like VAT, GST etc.) or relying on unfair borrowing conditions which are gender and poverty-regressive. Any efforts for international cooperation in multilateral spaces must be decolonised to allow for a democratic discourse on true redistribution. Speaking truth to power, the Independent Expert on the promotion of a democratic and equitable international order called for comprehensive multilateral action including an overhaul of the global tax system, establishment of a global fund for social protection and introduction of an emergency universal basic income.

Unfortunately, the global tax agreement backed by the OECD and G20 countries hailed as the one-stop solution for reforming the international financial architecture overlooks the most immediate needs of the populations of the global South and undermines the national sovereignty of global South countries to rightfully tax back profits. As part of the agreement, countries are also required to relinquish domestic measures like digital services taxes, equalization levy etc. that allowed them to tax digital companies in the interim. More importantly, Pillar II fell short of achieving any significant gains because of the low threshold of 15% proposed as the global minimum corporate tax rate. Civil society and academics have rallied around a rate of 25-30% where MNCs are treated as a single global entity - a proposal also endorsed by the UN High-level Panel on International Financial Accountability, Transparency and Integrity.

The Economic Policy Working Group of ESCR-Net has published a briefing paper on Tax Havens, to contribute to the important discussions taking place on a global scale, highlighting the need for more concrete actions by the international community to close these loopholes in the system, which allow the legacies of colonialism to flourish through debt, austerity and other neoliberal extraction mechanisms used by wealthy countries, corporations and individuals. 

There is often a racial connotation to the inordinate amount of attention paid to territories that were previously colonized and were used as tax havens for trade routes by the likes of OECD but not major enablers like the US. As the Third United Nations Decade for the Eradication of Poverty (2018–2027) coincides with the Fourth International Decade for the Eradication of Colonialism (2021-2030), recognising the role played by onshore secrecy jurisdictions in the global North like South Dakota, Delaware and other tax havens based in rich countries in facilitating tax abuse will set the course of this debate right. While the recent developments do signal a crucial recognition of the fault lines of the international financial system, they do not go far enough in being redistributive. 

ESCR-Net’s brief on Tax Havens highlights a raft of measures and actions that should be taken by the international community to combat these tax abuses. These include an amendment to the UN Model Double Taxation Convention between developed and developing countries on Article 12B to tax all payments including automated digital services like Amazon Web Services, progressively increasing the global corporate minimum tax rate from the recent 15% to over 25% and systematically assessing the extraterritorial impacts of tax abuse by the tax havens jurisdictions to inform economic policy reforms and agreements so as to tackle constraints on fiscal space that undermine States’ human rights obligations among others.

+ Download the briefing paper on Tax Havens in English, Spanish, French and Arabic.

 About the authors 

Sakshi Rai is a Program Officer at the Center for Economic and Social Rights overseeing the global economic governance work with expertise on international tax and financial transparency issues. She is a development economist and is also a BEPS Monitoring Group member.

Wesam Ahmad is the Director of the Applied Center for International of Al-Haq and Coordinator of Al-Haq's Business and Human Rights Program. His area of research focuses on the economic incentive structure perpetuating the colonization of Palestine along business lines.

Ausi Kibowa is a Policy Analyst at the Initiative for Social and Economic Rights where he leads work around economic inclusion and fiscal policy matters.