Valuing Respect

The International Bar Association’s Human Rights Institute (IBA-HRI) found that in the context of the developing world, tax practices considered most relevant to potential human rights impacts include transfer-pricing and other cross-border intra-group transactions (see L Lipsett). Multi-national enterprises may “take advantage of gaps in the interaction of different tax systems to artificially reduce taxable income or shift profits to low-tax jurisdictions in which little or no economic activity is performed” (see OECD). The Tax Justice Network’s State of Tax Justice 2024 report states that multinational enterprises “are shifting on average USD 1.13 trillion worth of profit into tax havens, causing governments around the world to lose USD294 billion per year in direct tax revenue” and that a further USD145 billion in direct tax revenue is lost from offshore wealth tax evasion.

In certain jurisdictions and sectors, this type of “offshoring” can be particularly impactful. For example, several large agro-exporters operating in the Ukraine have registered their grain operations in offshore jurisdictions (e.g. Switzerland, Cyprus, British Virgin Islands). The resulting lost tax revenue for Ukraine is estimated to be USD1.2 billion annually from corn alone between 2012–17, instead of being retained in Ukraine to support domestic services, infrastructure or small-scale farmers, thus contributing to rising inequality in the country and acutely impacting the country’s ability to meet basic domestic needs in a time of war.

There are also stark examples where loopholes in country tax codes are exploited significantly to minimize corporate tax liability, with important implications for tax revenues. For example, a 2025 study found that in the United States, private equity managers exploit a carried interest loophole by classifying their share of fund profits—typically around 20%—as long-term capital gains rather than ordinary income, thereby significantly reducing their tax liability. This allows them to pay tax rates of around 20% (plus surcharges), instead of the much higher top income tax rates of 37%. Additionally, these managers defer paying taxes on this income until assets are sold, creating a further timing advantage that contributes to a lower effective tax burden compared to wage earners. Combined, these strategies allow private equity executives to cut their effective tax rate nearly in half, depriving the state of important tax revenue and adding to already high levels of wealth inequality that erode political and social stability (see below). These or similar strategies also exist in other jurisdictions, including the UK.

Highly digitized business models have also been associated with challenges to existing taxation frameworks, including where the business is highly involved in the economic life of a jurisdiction without any significant physical presence, as well as where a high number of assets are intangible (such as algorithms and software). (See OECD).

Aggressive taxation practices such as those identified above can “deprive governments of the resources required to provide the programmes that give effect to economic, social and cultural rights, and to create and strengthen the institutions that uphold civil and political rights.” (See Lipsett). Lost revenue from taxation can lead to decreased funds available for spending on “services such as health, education, housing, access to water and other human rights.” It has been reported that countries in the global south lose much more money to tax evasion and illicit financial flows than they receive in international aid. The Tax Justice Network estimates that lower income countries lose five times as much tax income, as a share of their public health budgets, compared to higher income countries.

• The connection between tax and inequality is increasingly clear. Aggressive tax practices by multinationals and wealthy individuals risk eroding public tax revenues, which increases post-tax inequality and limits investment in productivity-enhancing public goods. Higher inequality, in turn, has been shown to depress long-term growth and raise financial instability by weakening demand, increasing household leverage, and reducing fiscal buffers (e.g., government savings). An OECD report to the 2024 G20 Finance Ministers and Central Bank Governors explored how tax systems can mitigate or exacerbate inequality with a focus on the distribution of income and wealth. The paper notes that “persistent income inequality and the rising concentration of wealth at the highest end of the distribution have strengthened calls for tax policy action to mitigate inequality and support more inclusive growth.”

• There are also important links between tax and climate change, which manifest in multiple ways and can also exacerbate these inequalities. The first is related to the diversion of funds needed to finance the transition to a low carbon and climate-resilient society. The Climate Policy Institute estimates that if we are to minimize the worst climate impacts, the funding required for global climate mitigation and adaptation investments – such as renewable energy and climate-resilient infrastructure – is USD7.4 trillion per year through 2030. As taxation is an important mechanism by which to raise public funds, abusive corporate tax practices are negatively impacting public funding sources globally, which, argues the Tax Justice Initiative, “hits poorer countries hardest, as they suffer revenue losses equivalent to a larger share of their current tax revenues.” The same communities also experience some of the most severe physical climate impacts, as a result of higher exposure and vulnerability to floods, droughts and storms, with fewer public funds available to adapt and build resilience. Further, Article 9.1 of the Paris Agreement establishes a binding obligation that developed country Parties “shall provide financial resources to assist developing country Parties with respect to both mitigation and adaptation”. Yet aggressive tax practices by multinationals severely erodes the public revenues available, exacerbating pressures on available climate finance flows within countries, as well as from developed to developing countries.

To remedy climate-related loss and damage incurred by vulnerable communities globally. Amnesty International and others have called for funding from public sources, “including through taxes and levies for corporations and sectors based on the polluter pays principle.”

Another way in which tax and the low carbon transition intersect is with respect to the use of carbon pricing schemes to curb emissions from high-carbon industry. These tax policy approaches are in use in more than 25 jurisdictions globally, and if progressive in their design, can minimize impacts on households while helping to raise revenue for health, education, jobs, low-carbon industries, climate resilient infrastructure and enhancing energy access. These revenues can be used to ensure that the climate transition occurs in a way that respects the rights of workers and communities and serve to “complement, rather than compromise, other efforts of States to fulfill their human rights obligations”. However, corporate lobbying in opposition to this type of taxation has tended to focus on characterizing it as unfair and punitive for workers and consumers regardless of steps taken to minimize regressive impacts. This characterization has, in some instances, helped to undermine both the revenue generation and emissions reduction potential of carbon pricing. Examination of corporate lobbying on tax issues should reflect consideration of the full range of effects on people and not make selective arguments.

The “corporate responsibility to respect,” the second pillar of the UNGPs, “exists independently of States’ abilities and/or willingness to fulfil their own human rights obligations, and … exists over and above compliance with national laws and regulations protecting human rights.” (Principle 11, Commentary). In other words, “all business enterprises have the same responsibility to respect human rights wherever they operate” (Principle 23, Commentary), whether or not they have a domestic legal obligation to do so. As such, undue or aggressive use of taxation strategies may infringe companies’ responsibility even where actions are legal under local taxation laws.

The UNGPs note that companies should “strive for coherence between their responsibility to respect human rights and policies and procedures that govern their wider business activities …” (Principle 16, Commentary), which would be relevant where aggressive tax strategies undermine efforts to respect rights in jurisdictions of operation.

Where a company is benefiting from an unduly aggressive tax strategy or unusually generous taxation deal in a particular location, it may be directly linked to impacts that result from a lack of public services for local populations. Where it is aware of this situation and does nothing, it may be judged to contribute to such impacts. This may be a contribution in parallel with other companies benefiting from similar tax arrangements, such that they collectively deplete state revenues needed to fulfil people’s human rights. If the company lobbies in favor of tax deals that undercut state revenues with similar results, it may be seen as contributing by incentivizing the government to favor corporate benefits over the human rights of the population.

The connection between taxation planning and human rights is complex, but receiving increased attention. Mauricio Lazala, Deputy Director of the Business and Human Rights Resource Centre has noted that “[t]he State duty to protect human rights in its corporate tax policies, the business responsibility to respect human rights and carry out due diligence in their tax practices, and the need for effective remedy for tax abuse are all relevant, yet still emerging dimensions of the UN Guiding Principles on Business and Human Rights.”