Tax Abuses, Poverty and Human Rights
IBAHRI Task Force report
TAX HOLIDAYS AND INCENTIVES
Tax holidays and incenties are not in principle abusiie. Indeed, tax incenties can be a
powerful tool for goiernments to promote certain types of desirable taxpayer
behaiiour, whether for indiiiduals or business enterprises.
Stakeholders proiided examples of how tax incenties can strengthen eniironmental,
social and human rights results: for example:
o tax rebates for iniestment in green technologies; for a tax-free educaton fund
for a child’s post-secondary educaton
Furthermore, there may be sound policy reasons for certain tax holidays or incenties
o In the context of foreign iniestment, a tax holiday or incentie may atract the
inital iniestment and, aferwards, the initally foregone tax reienues may be
made up by direct and indirect taxes that the iniestment generates ( = States will
always “compete” with each other)
Not always clear whether tax holidays and incentves result in a beneft or society and the
economy as a whole.
Tax holidays and incenties may result in a perierse form of ‘representaton without
taxaton’, which undermines fundamental democratc principles. As one stakeholder
stated, ‘when corporatons and elites negotate ways out of taxaton, you begin to haie
corrupton at an insttutonal leiel that undermines democracy.
These ‘sweetheart deals’ are seen to be objectonable in terms of fairness, as well as
efficiency: they are unfair to other taxpayers who may not haie the bargaining power to
negotate such adiantageous terms.
o They may also harm another country and its populaton where a foreign
iniestment would otherwise haie taken place but for the tax holiday or
incentie
Throughout the Task Force’s consultaton process in Latn America and the SADC region,
concerns about tax holidays and incenties were raised by stakeholders − partcularly in
the context of foreign iniestment agreements.
There is a potental for resentment and oppositon if multnatonal enterprises do not
pay their fair share of taxes and do not proiide meaningful benefts to the local
economy.
Furthermore, stakeholders ofen noted that the negotaton of tax holidays and
incenties is ertle ground or bribery and corrupton.
o During the course of the Task Force research, economic sanctons were being
lifed in Myanmar (Burma) and a new investment law was being developed
that proiided for tax concessions and holidays to atract foreign iniestment.
o Ciiil society representaties raised concerns about the potental for
corrupton in negotatng these tax concessions, as well as the fear that less
money will actually contribute to deielopment and more money will fow
, into the ofshore accounts of members of the regime with a iery poor human
rights record.
In a report to the G20 Deielopment Working Group, the Internatonal Monetary Fund
(IMF), the OECD, the United Natons (UN) and the World Bank stated that:
‘tax breaks aimed at oreign direct investment (largely to Multnatonal Enterprises
(MNEs) domiciled in G20 countries) are an especially signifcant orm o tax expenditure
in many developing countries in many cases signifcantly undermining their tax revenue
base.’
Deieloping countries may belieie that resistng multnatonal enterprises’ demands for tax
breaks will driie the iniestment in queston elsewhere:
‘This sort of bargaining can result in a “race to the botomm, in which countries in a
region are made collectiely worse of, to the beneft of the multnatonal iniestors.
The A rican Tax Administraton Forum questons whether the use of tax incenties is a cost-
efectie way of oiercoming iniestment impediments:
‘In general, it is beter to focus on the actua impediments to investment and aim to
address these directly. Addressing non-tax impediments [eg, lack of infrastructure]
may be a more efeccte policy than seeking to match the tax incenctes protided by
other countries, especially if the later prompts a race towards widespread
exempcons and a de facto zeero-tax regime.%
Since tax exemptons are ofen granted through special agreements negotated without the
inioliement of tax authorites, they can undermine the ability of those authorites to object
to exemptons granted by other branches of the goiernment:
G20 countries should encourage their resident companies to ensure that, if tax
exemptons are to be granted, the tax authorites of the deieloping countries are
fully iniolied in the negotaton and design of these exemptons
WHAT IS TAX RESPONSIBILITY?
A responsible approach to corporate tax incorporates at least three elements:
A. A responsible tax policy: A clear, publicly communicated tax policy, which aligns
the company on a tax risk management scale; sets out the company’s approach to
tax negotatons; and rules out specifed aggressiie tax practces.
B. Managing tax planning: Measures for ensuring that the (responsible) tax policy is
implemented throughout the group: including communicatng the policy, training
releiant employees, setng out compliance mechanisms and proiiding
mechanisms for identfying non-compliance.
C. Reportng on tax responsibility: Detailed published informaton on where and
how a company pays tax – in each jurisdicton where it operates – sufficient to
ensure that company practce matches policy, and that iniestors can gauge risks
associated with the company’s tax practces.
It is worth notng the similarity between these steps and a human rights due diligence
process for business enterprises under the UN Guiding Principles on Business and Human
Rights.
IBAHRI Task Force report
TAX HOLIDAYS AND INCENTIVES
Tax holidays and incenties are not in principle abusiie. Indeed, tax incenties can be a
powerful tool for goiernments to promote certain types of desirable taxpayer
behaiiour, whether for indiiiduals or business enterprises.
Stakeholders proiided examples of how tax incenties can strengthen eniironmental,
social and human rights results: for example:
o tax rebates for iniestment in green technologies; for a tax-free educaton fund
for a child’s post-secondary educaton
Furthermore, there may be sound policy reasons for certain tax holidays or incenties
o In the context of foreign iniestment, a tax holiday or incentie may atract the
inital iniestment and, aferwards, the initally foregone tax reienues may be
made up by direct and indirect taxes that the iniestment generates ( = States will
always “compete” with each other)
Not always clear whether tax holidays and incentves result in a beneft or society and the
economy as a whole.
Tax holidays and incenties may result in a perierse form of ‘representaton without
taxaton’, which undermines fundamental democratc principles. As one stakeholder
stated, ‘when corporatons and elites negotate ways out of taxaton, you begin to haie
corrupton at an insttutonal leiel that undermines democracy.
These ‘sweetheart deals’ are seen to be objectonable in terms of fairness, as well as
efficiency: they are unfair to other taxpayers who may not haie the bargaining power to
negotate such adiantageous terms.
o They may also harm another country and its populaton where a foreign
iniestment would otherwise haie taken place but for the tax holiday or
incentie
Throughout the Task Force’s consultaton process in Latn America and the SADC region,
concerns about tax holidays and incenties were raised by stakeholders − partcularly in
the context of foreign iniestment agreements.
There is a potental for resentment and oppositon if multnatonal enterprises do not
pay their fair share of taxes and do not proiide meaningful benefts to the local
economy.
Furthermore, stakeholders ofen noted that the negotaton of tax holidays and
incenties is ertle ground or bribery and corrupton.
o During the course of the Task Force research, economic sanctons were being
lifed in Myanmar (Burma) and a new investment law was being developed
that proiided for tax concessions and holidays to atract foreign iniestment.
o Ciiil society representaties raised concerns about the potental for
corrupton in negotatng these tax concessions, as well as the fear that less
money will actually contribute to deielopment and more money will fow
, into the ofshore accounts of members of the regime with a iery poor human
rights record.
In a report to the G20 Deielopment Working Group, the Internatonal Monetary Fund
(IMF), the OECD, the United Natons (UN) and the World Bank stated that:
‘tax breaks aimed at oreign direct investment (largely to Multnatonal Enterprises
(MNEs) domiciled in G20 countries) are an especially signifcant orm o tax expenditure
in many developing countries in many cases signifcantly undermining their tax revenue
base.’
Deieloping countries may belieie that resistng multnatonal enterprises’ demands for tax
breaks will driie the iniestment in queston elsewhere:
‘This sort of bargaining can result in a “race to the botomm, in which countries in a
region are made collectiely worse of, to the beneft of the multnatonal iniestors.
The A rican Tax Administraton Forum questons whether the use of tax incenties is a cost-
efectie way of oiercoming iniestment impediments:
‘In general, it is beter to focus on the actua impediments to investment and aim to
address these directly. Addressing non-tax impediments [eg, lack of infrastructure]
may be a more efeccte policy than seeking to match the tax incenctes protided by
other countries, especially if the later prompts a race towards widespread
exempcons and a de facto zeero-tax regime.%
Since tax exemptons are ofen granted through special agreements negotated without the
inioliement of tax authorites, they can undermine the ability of those authorites to object
to exemptons granted by other branches of the goiernment:
G20 countries should encourage their resident companies to ensure that, if tax
exemptons are to be granted, the tax authorites of the deieloping countries are
fully iniolied in the negotaton and design of these exemptons
WHAT IS TAX RESPONSIBILITY?
A responsible approach to corporate tax incorporates at least three elements:
A. A responsible tax policy: A clear, publicly communicated tax policy, which aligns
the company on a tax risk management scale; sets out the company’s approach to
tax negotatons; and rules out specifed aggressiie tax practces.
B. Managing tax planning: Measures for ensuring that the (responsible) tax policy is
implemented throughout the group: including communicatng the policy, training
releiant employees, setng out compliance mechanisms and proiiding
mechanisms for identfying non-compliance.
C. Reportng on tax responsibility: Detailed published informaton on where and
how a company pays tax – in each jurisdicton where it operates – sufficient to
ensure that company practce matches policy, and that iniestors can gauge risks
associated with the company’s tax practces.
It is worth notng the similarity between these steps and a human rights due diligence
process for business enterprises under the UN Guiding Principles on Business and Human
Rights.
