TWN Info Service on Finance and Development (Oct16/06)
17 October 2016
Third World Network

New UNSG urged to hold global meet on tax havens
Published in SUNS #8333 dated 14 October 2016

Geneva, 13 Oct (Kanaga Raja) -- A United Nations human rights expert has called on newly elected United Nations Secretary-General (UNSG) Antonio Guterres to convene a world conference to discuss the issues of tax avoidance and evasion, the abolition of tax havens as well as the protection of whistleblowers.

In a UN news release, the Independent Expert on the promotion of a democratic and equitable international order, Mr Alfred de Zayas (United States), said: "The choice of Mr Guterres as the next UN Secretary-General offers a unique opportunity to advance the fight against tax evasion and illicit financial flows, at a moment where the world is paying increasing attention to these crucial issues".

"I sincerely hope that the abolition of tax havens and the creation of a United Nations Tax Authority with a mandate to combat offshore tax avoidance and evasion, and to outlaw tax havens, will be among Mr Guterres' priorities."

"Trillions of dollars necessary for combatting extreme poverty and addressing climate change are being kept offshore, thus escaping just taxation and effectively stealing hundreds of billions of dollars each year from the public treasuries," the rights expert said.

Mr De Zayas pointed out that widespread tax avoidance, tax evasion, tax fraud and profit-shifting, facilitated by bank secrecy and a web of shell companies registered in tax havens, are now routinely documented, but their true human cost is only revealed progressively.

Noting that an increasing number of human rights experts are reporting on the issue, Mr De Zayas highlighted the need to put the issue of taxation on the agenda of the General Assembly and of the Human Rights Council, in particular through the Universal Periodic Review and the 2016 Forum on Human Rights, Democracy and the Rule of Law.

"Corruption, bribery, tax fraud and tax evasion have such grave effects on human dignity, human rights and human welfare that they shock the conscience of mankind. They should be prosecuted nationally and internationally," he said.

"The United Nations must take concerted action against abuses and crimes perpetrated by individuals, speculators, hedge funds and transnational enterprises who skirt taxes and loot governments."

In particular, the rights expert urged the UN General Assembly to draft a convention to outlaw tax havens worldwide, declare so-called ‘sweetheart deals' (of countries/governments) with transnational corporations such as Apple, Google and Starbucks to be contrary to international ordre public.

Mr De Zayas also stressed the need for effective protection of whistleblowers.

"Whistleblowing is one of the most effective methods of shining light on corruption. Thanks to the revelations of the Panama Papers, Bahamas Papers, Luxleaks and the UNAOIL scandal, a public debate on corruption, bribery and tax havens has started that is providing momentum for legislative changes to abolish secrecy jurisdictions," he said.

But whistleblowers, who should be considered as human rights defenders as they significantly contribute to a culture of transparency and accountability, often pay a heavy price, he noted.

"It is in the spirit of a democratic and equitable international order to adopt legislation to protect whistleblowers and witnesses from reprisals and to provide them with easy-to-access avenues to make disclosures," said Mr De Zayas.

According to the news release, the Independent Expert will be convening on 14 October an expert consultation, at which "strategies will be discussed, including the mainstreaming of human rights into the activities of the World Bank and International Monetary Fund, which should henceforth refuse funding to any project or country that participates in or allows illicit financial flows into tax havens".

Meanwhile, in his latest report to the General Assembly (A/71/286) on the human rights impact of tax avoidance, tax evasion, tax fraud and profit-shifting, Mr De Zayas said that a human rights-based approach to taxation and stricter measures against tax fraud, tax evasion and tax havens are urgently needed because a shortfall in tax revenues handicaps Governments in meeting human rights treaty obligations.

The Independent Expert pointed to "white-collar criminality" that has enjoyed a high level of anonymity and impunity. Indeed, it is the infrastructure of intermediaries, including tax advisers, law firms, accountants and trust service providers, that facilitates tax evasion and avoidance as well as cross-border illicit financial flows.

Every strategy to tackle the intermediaries, euphemistically called "enablers" or "service providers", must be part of the effort to tackle tax evasion, said Mr De Zayas.

Part of the problem lies in the mantras of market fundamentalism and the belief that financial markets should be deregulated because this ultimately benefits everyone, including the poor. Although no empirical evidence exists to back this up, transnational corporations and the super-rich have succeeded in creating an enabling environment for systematic looting of society.

"Collusion between the world's biggest banks, specialized law firms, and consulting and accounting firms has led to a global system designed to hide money and avoid taxes by virtue of secretive offshore structures. This is unethical, and should be perceived as such by professional associations, law schools and business schools," he said.

Yet, instead of prohibiting activities that are clearly contra bonos mores and may amount to conspiracy, or even a form of racketeering, States have entered into a kind of self-destructive competition among themselves to see which jurisdiction offers greater secrecy facilities.

"The situation has been a bonanza for lawyers and accounting firms and become toxic to the fiscal health of many countries, particularly since financial globalization expanded in the 1980s and 1990s. The offshore world corrupts and distorts markets and investments, shaping them in ways that have nothing to do with efficiency," said Mr De Zayas.

Whistle-blowing is one of the most effective methods of shining a light on corruption. Thanks to the revelations of whistle-blowers a public debate on tax havens has started that is providing momentum for legislative changes to abolish secrecy jurisdictions.

But whistle-blowers often pay a heavy price. It is in the spirit of a democratic and equitable international order to adopt legislation to protect whistle-blowers and witnesses from reprisals and to provide them with easy-to-access avenues to make disclosures.

According to Tax Justice Network, there are over 100 "secrecy jurisdictions", a term preferred over tax havens for which there is no definition based on objectively verifiable criteria.

The Network's global analysis reveals that there is a spectrum of financial secrecy in most jurisdictions assessed and that what is needed is a reform of the system, rather than looking for "unproblematic" jurisdictions.

Also according to Tax Justice Network, an estimated $21-$32 trillion of private financial wealth is located offshore, untaxed or lightly taxed, in secrecy jurisdictions around the world.

Estimated revenue losses are on the order of $190 billion annually.

According to the UN Conference on Trade and Development (UNCTAD), this costs developing countries more than $100 billion annually.

The Tax Justice Network Financial Secrecy Index ranks jurisdictions according to their secrecy and the scale of their offshore financial activities.

The top three jurisdictions listed in the 2015 index were Switzerland, Hong Kong-China, and the United States.

Other high-profile jurisdictions include the United Kingdom of Great Britain and Northern Ireland and its Overseas Territories and Crown Dependencies, Luxembourg, the Netherlands, Belgium, Malta, Cyprus, Singapore, Liberia and Panama.

According to Tax Justice Network, illicit cross-border financial flows have been estimated at $1.6 trillion per year, dwarfing the $135 billion devoted globally to "foreign aid".

It is estimated that since the 1970s African countries alone have lost over $1 trillion in capital flight, while combined external debts are less than $200 billion.

"Viewed from this perspective, Africa is a major creditor to the world, but its assets are in the hands of a wealthy elite, protected by offshore secrecy, while the debts are shouldered by populations already suffering from extreme poverty," said the Independent Expert.

According to OECD, the artificial schemes of base erosion and profit-shifting result in global corporate income tax revenue losses of $100-$240 billion annually.

According to Oxfam, United States corporations hide at least $1.3 trillion in tax havens, and profit-shifting by US multinationals suggests that about 25-30 per cent of global profits are shifted into jurisdictions with no corresponding real economic activity.

"Because the tax activities of domestic and transnational corporations have significant direct and indirect socio-economic impacts, a binding legal instrument on corporate social responsibility stipulating the obligation to pay taxes where the profits are generated and a prohibition on shifting profits should be adopted."

According to the rights expert, this would encourage responsible tax behaviour that does not harm global financial stability, development and human rights.

Taxation should be used to advance human rights. Fiscal and budgetary policy should be reformed with a view to achieving fair taxation by abolishing tax havens and "sweetheart" deals, closing loopholes and rejecting contra bonos mores schemes and abuse of rights.

Progressive redistributive taxation polices will produce funding for vital public services that will reduce inequality and poverty and lead to sustainable development, said Mr De Zayas.

In his report, the Independent Expert called on States to establish an intergovernmental tax body under the auspices of the United Nations with the mandate to elaborate a United Nations convention on taxation and international cooperation in tax matters.

States should also adopt a common United Nations standard for multilateral and automatic exchange of tax information, and implement corporate tax and financial transparency, including public registries of ultimate beneficial ownership.

In addition, States should enact legislation to protect whistle-blowers and witnesses, and ensure that individuals who want to share information about corporate tax practices which harm human rights are not prosecuted or subjected to reprisals.

"States should cease punishing individuals for disclosing information that the public has a right to receive pursuant to article 19 of the International Covenant on Civil and Political Rights."

Furthermore, a charter on the rights of whistle-blowers and a "protected disclosure defence" should be adopted, pursuant to which criminal or civil liability for protected disclosures is waived and an "authorized channel" is provided for such disclosures.

The Independent Expert called on the General Assembly to revise the Guiding Principles on Business and Human Rights and support the adoption of a legally binding instrument on corporate social responsibility prohibiting "aggressive tax avoidance", tax fraud, tax evasion and tax havens.

He said UNCTAD should develop a strategy to protect the policy space of States in controlling capital flows, in particular to curb and criminalize illicit financial flows and the flight of money to tax havens, in cooperation with the Office of the United Nations High Commissioner for Human Rights and the United Nations Office on Drugs and Crime.

The International Monetary Fund, the World Bank and central banks should refuse loans to countries that harbour tax havens.

"No project should be subsidized if the enterprises involved use secrecy jurisdictions," said Mr De Zayas. +