The triumphant and critical perspectives have always been present in the specialist discourses about the “justice” of global and national taxation regimes. India is no stranger to this: Witness the controversies regarding exemption from income tax for agriculture, progressive taxation measures, and even the current post-arbitration negotiation with Vodafone.
Most recently, the ongoing reporting of Pandora Papers reveals the secrets of “wealthy elites from more than 200 countries and territories” and data about “tax and secrecy havens”. A spectre of the global economy as a supersystem for wealth-maximisation run amok, reveals again the menacing faith, and face, of the worship of private profit. Giant footprints of illicit economies by the enemies of impoverished people everywhere continue to endanger human rights, justice, and collective human security.
The pursuit of human rights and justice cannot merely be matters of state and polity. It affects all citizens of the world. Even hard-nosed economic theorists and CEOs must now accept the sentiment (in the famous Bollywood ditty of the 1950s): “Jahan bajti hai shehnai, wahan matam bhi hote hain (Where the trumpets sound, there is also lamentation)”. The global movements for tax justice take people’s suffering and civic lamentation seriously as a way of taking human rights seriously.
The European Organisation for Economic Cooperation and Development (OECD) has blown its trumpet by announcing its inclusive framework’s statement (backed by 134 countries and jurisdictions and extending to over 90 per cent of the global economy). It adopts a two-pillar solution: Pillar one applies to about 100 of the biggest and most profitable MNEs and re-allocates part of their profit to the countries where they sell their products and provide their services — this would obviate the unfair corporate governance practices, which specialise in tax avoidance and evasion. Under pillar two, any company with over EUR 750 million of annual revenue would now be subject to an effective minimum rate of 15 per cent.
The OECD declares that “tax havens” would “no longer exist” and that “international financial services may continue” only on “the basis that they add real economic value for their customers and support for commercial transactions that are not tax-driven”. Pillar one ensures that with “more than $125 billion of profit re-allocated to market jurisdictions, developing countries will stand to gain more than developed countries as a share of corporate income tax”. And the global minimum tax may “generate around $150 billion in additional global tax revenues per year”. The developing countries will further gain “revenues under a treaty-based subject to tax rule (STTR) which will allow countries to retain their right to tax certain payments…” Besides these two pillars, it is said that the OECD plan will neither discourage tax competition nor innovation.
The elimination of tax havens is a good human rights scenario. The losses due to “tax abuse” have been estimated by the Tax Justice Institute (The State of Tax Justice 2020 report) at nearly $427 billion annually. Of this staggering amount, nearly $245 billion is lost to “multinational corporations shifting profit into tax havens in order to underreport how much profit they actually made in the countries where they do business”. The remaining “$182 billion is lost to wealthy individuals hiding undeclared assets and incomes offshore, beyond the reach of the law”.
The average loss equivalent of 9.2 per cent haunts national health budgets. This amount goes to tax havens every year, with “lower-income countries losing much larger equivalent proportions than higher-income countries”. Higher-income countries, though they suffer a loss of $382 billion in tax revenue annually, are responsible for facilitating 98 per cent of all global tax losses, while lower-income countries are responsible for less than 2 per cent. Even during the pandemic, when all countries need greater resources to protect public health, the human right to health and equitable healthcare stands mocked. For example, the equivalent of over 34 million nurses’ annual salaries is lost to tax havens each year globally!
The OECD proposals have received a mixed response from global tax justice NGOs because of the apprehension that the global level of 15 per cent tax on multinational enterprises and corporations, instead of serving as a mere baseline, will eventually become the basic norm, thus discouraging any healthy tax competition.
The Global Alliance for Tax Justice has denied legitimacy to the OECD statement and described it as a “politically biased and opaque process, outside the UN system” which does not “address the fundamental problems of the current international tax architecture”. It reiterates its demand for “the establishment of a universal, intergovernmental UN tax commission” and “negotiating a UN Tax Convention to comprehensively address tax havens, tax abuse by multinational corporations and other illicit finance…” Probably, the UN Human Rights Council can be a pivotal agency performing leadership tasks, given the history of OECD, which promoted distinctly trade-related and market-friendly multilateral arrangements and undermined the human rights of the impoverished masses and nations. Besides, this suggestion entails greater transparency and wider participation in the UN system.
Given the privatisation and corporatisation of many of its mandates and missions, and the overall performance of the permanent members of the Security Council, the display of faith in the UN system is indeed moving. But one must take the world system as one may find it, without ever abandoning the dreams of a just world order. The human right to dream must remain a struggle to overcome all nightmares, particularly those assiduously justified by market fundamentalism and manufactured by profligate global corporate governance.
This column first appeared in the print edition on October 18, 2021 under the title ‘The pursuit of tax justice’. The writer is professor of law, University of Warwick, and former vice-chancellor of Universities of South Gujarat and Delhi