Good corporate governance – balancing the interests of a company’s many stakeholders including workers and the community, as well as shareholders, managers and customers – is increasingly seen as essential. The concept of corporate accountability implies corporations must be ‘held to account’ for harmful business practices, emphasizing companies’ legal obligations and the ability of stakeholders to seek redress. Multinational corporations, who have often been the targets of advocacy and campaigning related to their business practices, are increasingly obliged to demonstrate good corporate citizenship through environmental awareness, ethical behavior and sound corporate governance practices.

In recent years the concept of fair taxation has been added to the list of corporate practices coming under scrutiny. It is increasingly recognized that there are major challenges with corporate tax contributions, with current rules allowing multinational corporations to manipulate their declared profits using offshore structures and the secrecy these afford. Research has documented the excessively low tax contributions of multinationals and highlighted the impact on public finances as a result. The lack of transparency around corporate ownership structures, finances and tax contributions – particularly as a result of the widespread use of secrecy jurisdictions – has been highlighted as a significant barrier. Stakeholders are now calling for more involvement of the business community to champion an ethical taxation agenda.

Effective tax systems are a central precondition for development. Tax revenue is critical to fund public services, infrastructure and to enable developing countries to reduce poverty. Effective tax collection is also of fundamental importance if developing countries are to escape from current levels of aid dependency and develop effective state administration and public financial management systems. Since the Monterey Consensus in 2002, the concept of improving domestic resource mobilization (DRM) has been increasingly recognized as central to the global development agenda. The ongoing consequences of the 2008 global financial crisis, and consequent introduction of austerity measures in developed countries, coupled with growing donor fatigue, have elevated the discourse around DRM to new heights. As a result the tax issue, including tax targets, are an important element of sustainable development goals (SDGs).

DRM efforts, often supported by multilateral and bilateral donors, have historically focused on strengthening tax administrations and have often relied on reforms to bolster indirect taxation (e.g. sales taxes), as opposed to focusing on income and asset taxes. Generally DRM efforts in developing countries are greatly hampered by excessive tax exemptions and preferences granted to multinational corporations, the inability of developing countries to tackle illicit financial flows and abusive transfer pricing by multinationals, the poor taxation of natural resource extraction and ineffective taxation of assets such as land and property and sources of income such as capital gains. These are all areas where tax activists have called for more action, including at the international level to ensure developing countries are enabled to collect their fair share of taxes from multinational corporations.

The promotion of good governance and government accountability at national level is an integral part of many donor-funded development programs. The concept of good governance includes effective and transparent public financial management, equitable taxation and public spending to meet citizen’s needs, mechanisms to prevent corruption and fraud, and mechanisms to enable effective citizen (taxpayer) engagement and enhance state accountability in all areas.

While progressive reforms and action at the national level can ensure significant progress, measures to enhance global governance are also critical. It is widely accepted that the current global taxation rules are not fit for purpose. The existence of tax havens that offer financial secrecy and low, or zero, tax rates provides an environment which encourages aggressive tax planning especially by wealthy elites and multinational corporations and facilitates illicit financial flows, draining resources particularly from developing countries. Financial crimes, including tax crimes, threaten the strategic, political and economic interests of both developed and developing countries and undermine confidence in the global financial system. Both global and national level reforms that strengthen tax systems and the institutions that fight corruption and fraud, diminish secrecy and provide access to information, and generally enhance governance and states’ accountability to their citizens are urgently needed.

The promotion of human rights by governments is meaningless without an adequate effort to collect the necessary funds to provide food, water, housing, healthcare and education for all. Taxes are the most sustainable source of revenue for governments and are particularly critical to meet recurrent costs such as paying salaries of teachers, doctors and nurses as well as being the bedrock of any social security system. Where tax abuses occur, they deprive governments of the resources required to give effect to economic, social and cultural rights, as well as to create and strengthen the institutions that uphold civil and political rights.

While taxation has a fundamental role in the realization of human rights, there is still an important distinction between labeling tax abuses as ‘legal violations of human rights’ and stating that tax abuses ‘have negative impacts on human rights’. Though legally there is a distinction, using a human rights analysis is important to advocate for strengthened tax systems from an ethical and political perspective. The ethical dimension is important, particularly as many are questioning the fairness and morality of sophisticated tax planning strategies that result in wealthy individuals and corporations not paying their fair share of tax – and perhaps not paying any tax at all. In a context of persistent poverty and rising inequality, the fact that the current tax rules (which produce unfair results) are technically legal is no longer a sufficient justification for their use, particularly when a human rights based approach is applied.

A huge amount of research and advocacy over the past decade has drawn attention to the use of secrecy jurisdictions and the various loopholes that allow corporate income to escape offshore untaxed. Even taking into account the problem of money laundering of the proceeds of crime and corruption, it is thought that commercial tax evasion (legally obtained capital that becomes part of an illicit transaction because of tax abuse by corporations) is responsible for a large part of illicit capital held offshore. Multinationals seeking to minimize their tax bills can manipulate import and export prices in their transactions with subsidiaries, as well as manipulating fees for services and the use of intellectual property. With techniques such as these they can shift profits from one country (high-tax jurisdiction) to another low or zero tax jurisdiction. Such practices greatly undermine countries’ tax collection efforts, particularly of developing countries who are often more reliant on corporate income taxes and less able to confront multinationals’ tax dodging practices.

Research by academics, non-profit organizations and investigative journalists has now established beyond doubt the scale of the problem. Exposes of the extremely low tax contributions of multinationals such as Apple, Amazon, Google and Starbucks are common. The Panama Papers, LuxLeaks and other tax scandals have also shown the extent of tax haven usage and the assets being sheltered. There is now a general acceptance that international tax rules have not kept up with the changing nature of business and the international system is no longer fit for purpose. The OECD Base Erosion and Profit Shifting (BEPS) Action Plan is a response to this reality, developing new rules in a range of areas related to multinational tax planning. However, while the problem is recognized and some progress being made, there is still a lot to be done to reform international taxation rules to ensure that multinationals cannot break the rules and to ensure that all countries (including particularly low-income countries) receive fair allocations of the corporate tax base according to the location of economic activity.

How public resources are spent determines the capacity of governments to provide access to quality, essential services for all. The provision of high quality, universal public services – such as health and education - are a fundamental part of any country’s development strategy. They are also a powerful weapon in the fight against social and economic inequalities, mitigating the impact of skewed income distribution. Forcing poor people to use their own resources to finance their families’ access to services is both inequitable and inefficient and can have large negative impacts, leaving families without healthcare or with children unable to access education. While the existence of privatized, fee-charging services implies an immediate financial burden on the poor, it also means that wealthier groups in society have less of a stake in any public provision of services that they don’t use. The importance of their ‘voice’ to demand quality services is withdrawn and public services tend to decline in quality as the wealthier members of society withdraw. Wealthier people also feel less incentive to pay tax to sustain public services they don’t use. All of this creates a vicious cycle of poorer quality services with less financial resources to sustain them.

Conversely providing poor people with access to good quality services is an important weapon in the struggle to break the inter-generational cycle of inequality. A universal approach to the provision of social services is essential to improve citizens’ wellbeing and the progressiveness of the public budget can be assessed on the basis of its investment in effective, equity-enhancing social services. In recognition of this, targets to roll out universal healthcare, free primary and secondary education and basic social security over the next fifteen years are integral to the new sustainable development goals (SDGs) and international development agenda.

The Sustainable Development Goals (SDGs) are a UN Initiative that follows on from the Millennium Development Goals (MDGs). The SDGs, officially known as Transforming our world: the 2030 Agenda for Sustainable Development, are a set of seventeen aspirational "Global Goals" with 169 targets between them. The goals cover: no poverty; zero hunger; good health and wellbeing; quality education; gender equality; clean water and sanitation; affordable and clean energy, decent work and economic growth; industry, innovation and infrastructure; reduced inequalities; sustainable cities and communities; responsible consumption and production; climate action; life below water; life on land; peace, justice and strong institutions; and partnerships for the goals. They came into effect in January 2016 and provide a focal point for governments and overseas aid programs. While the MDGs, in theory applied to all countries, in reality they were considered targets for poor countries. Conversely every country is expected to work towards achieving the SDGs. Achieving inclusive progress – that is reducing disparities between the poor and rich and between rural and urban areas in all areas of wellbeing – is also a key concern of the new SDGs.

Greater financial transparency is seen as a necessary starting point for tackling illicit financial flows, tax avoidance and tax evasion. Generally transnational criminals move money in the same way that tax evaders or corrupt public officials do. As such tax abuse, corruption and fraud have much in common, both ultimately relying on secrecy to enable the concealment of money.

A number of relevant transparency measures are being proposed. Specific tax-related transparency measures include: the automatic exchange of banking information between different countries’ tax authorities for tax purposes; the creation of a country-by-country reporting (CBCR) standard for multinationals which would report on profit and taxes paid (as well as turnover and employment) in every country including secrecy jurisdictions, and initiatives such as the Extractives Industries Transparency Initiative (EITI) which requires multinationals active in the extraction of oil, gas, minerals and other natural resources to disclose all revenue payments to governments. Another important transparency measure is the creation of a public register of ‘beneficial ownership’. The term beneficial ownership refers to the real owner of a company. If such a measure was widely adopted it would be much more difficult for tax-evaders and corrupt individuals to use anonymous companies to disguise their ownership of income and assets. Transparency measures are also important for a whole range of other types of data and information including: government budgets and government procurement contracts to ensure tax revenue is being effectively and efficiently used to meet the needs of all citizens in society.

An anonymous company is an entity that has disguised its ownership in order to operate without scrutiny from law enforcement or the public. You can easily create one in almost every jurisdiction in the world, including every state in the United States. These ‘phantom firms’ do little or no actual business but can open bank accounts and wire money like any other company. They are the favorite tool of tax dodgers, fraudsters and corrupt public officials to hide their businesses and assets from authorities, as well as the terrorists, drug cartels and mobsters who run criminal enterprises. The huge data leak from Panama law firm Mossack Fonseca has revealed the extent of the money laundering, tax evasion and other crimes enabled by anonymously owned companies.

An anonymous company can be a company listed in a place where the owner’s name is kept secret. It may also be that the owner of a UK company (which is made public) is simply listed as another company registered elsewhere. Or a company may list nominees as its owners and directors, with official records showing no signs that these people are not actually the true owners or directors. It is easy to find people to do the job of nominees, as there are companies who specialize in providing people for this purpose. Beneficial owner is the technical term for the real people who ultimately own or control a company, even if there are nominees, or layers of companies in between that ‘own’ the next company down the chain. Given the proven and widespread link between economic crimes and anonymous companies, campaigners are calling for all companies to be required to disclose their ultimate, human, beneficial owner(s) when they are created, and that this information be listed in a central registry. Ideally, these registries should be freely available to the public, rather than just to law enforcement so that everyone has the ability to know with whom they are doing business. It should be a matter of public record who owns and controls all companies.

The terms tax haven and secrecy jurisdiction are often used interchangeably. It is also common to see the term ‘offshore financial center’. These terms do not have a generally accepted definition. Tax haven generally refers to a jurisdiction that offers low, or no, taxes at all. However, activities associated with such jurisdictions go far beyond tax. The jurisdiction may offer financial secrecy, enabling foreign individuals to hide assets or income to avoid taxes at home. The term secrecy jurisdiction has become widely used as an alternative to ‘tax haven’ precisely to emphasize the secrecy aspect. Loosely speaking, a secrecy jurisdiction provides facilities that enable people or entities to escape tax obligations, as well as to escape from financial regulation, criminal laws, corporate governance rules and inheritance rules. The offshore system is an interconnected ecosystem of jurisdictions offering different mixes of these facilities. The British Virgin Islands, for example, specializes in incorporating offshore companies. Ireland is a corporate tax haven, with lax financial regulation, but not really a secrecy jurisdiction. Switzerland and Luxembourg offer secret banking, corporate tax avoidance and a wide range of other offshore services.

Just as there’s no agreed definition of tax havens, there’s no definitive list either. Several international bodies have their own lists, which frequently downplay the role of large powerful nations like the USA, a major secrecy jurisdiction in its own right. The Financial Secrecy Index is one attempt to research financial secrecy and assess how countries measure up. Although Switzerland topped the index in 2016, Britain is arguably the single most important player, given its control of a wide network of part-British territories (such as the Cayman Islands or Jersey) that are major players in the offshore system. Many European countries are significant players including: Switzerland, Luxembourg, Germany, Belgium, Austria, Cyprus, Gibraltar, Liechtenstein, Monaco and Andorra. Key Asian tax havens include Singapore, Hong Kong and Malaysia. Others with Asian links but also heavily used by Africans include Dubai and Mauritius. Another point to note is that secret capital almost always flows from poor to rich countries: overwhelmingly, secrecy jurisdictions are located in rich countries.

The international corporate tax system is based on the separate entity approach. As such each firm, including parent or subsidiary companies in a multinational corporate group, is treated as a legally separate entity and taxed accordingly. When related companies engage in transactions with each other current tax rules state a ‘transfer price’ is applied. This should follow the ‘arm’s length principle’ – i.e. be in line with the prices companies would have used if they were unrelated and not part of the same corporate group. However the system is ripe for abuse. Ensuring transfer prices follow the arm’s length principle is extremely difficult. There are countless examples documented already of multinationals distorting prices – such as underpricing exports – to shift profits from a high to a low tax jurisdiction. While it is difficult to apply transfer pricing rules to the trade in goods - due to quality differences between products - the situation is much more difficult when looking at other more intangible assets which are also traded. These include trade names and brand recognition, as well as intellectual property such as patents, copyrights, trademarks and business methodologies, with firms in the same group often able to manipulate the royalties and fees they charge for their use. Similarly there is great scope for manipulation of fees paid for management services and when multinational companies make loans and interest payments to one another. The more complex the web of related companies within a multinational corporate group the easier it is to avoid taxation by initiating transfers that cannot be deciphered or disputed.

These tax abuses are a particular problem for developing countries whose tax authorities are not well equipped to conduct complex transfer pricing audits and given their greater dependence on corporate income taxation for revenue. Tax havens and the facilities they offer – including crucially secrecy - play a central role in facilitating transfer mispricing and therefore contributing to this flow of illicit capital out of developing countries. While efforts to assist developing countries’ tax authorities to implement better transfer pricing controls are important, much greater progress would be made if corporate tax transparency measures were widely adopted and there was a genuine crackdown on tax havens. Global reforms related to transparency and disclosure (such as automatic information exchange between tax authorities, public disclosure of the beneficial owners of companies, public country-by-country reporting) and fundamental reforms to current global taxation rules would deliver benefits. In addition, many now believe the current separate entity principle is the fundamental problem. Increasingly it is being argued that if multinational corporations were taxed as single and unified firms this would provide an effective solution. Global corporate profits would be consolidated and no profits could be gained or lost through intra-company transactions. Each country could then get tax revenues from the multinational group profits in proportion to the business activities conducted there.

Money laundering is the process of disguising the proceeds of crime and integrating it into the legitimate financial system. It is a common technique used by transnational criminal networks involved in activities such as drug trafficking, human trafficking and terrorism financing. Generally transnational criminals move money in the same way that tax evaders or corrupt public officials do. Tax evasion and money laundering have much in common given they both rely on disguising and concealing money. Money laundering can be broken down into three stages: placement which occurs with the initial entry of illicit money into the financial system; layering which is the process of separating the funds from their source, often using anonymous companies; and finally integration which occurs when the money is returned to the criminal from a legitimate-looking source.

A raft of anti-money laundering laws exist, generally requiring banks to do due diligence to identify their customer and turn down illicitly acquired funds. The little known, inter-governmental body – the Financial Action Task Force (FATF) - sets the global standard for the anti- money laundering rules that are supposed to prevent flows of corrupt funds. However, even FATF member states are not fully compliant with its own recommendations, with, for example, most of the 24 countries not requiring banks to perform enhanced due diligence on politically-exposed persons (PEPs) - senior government officials or their relatives and associates, who because of their access to state resources are a heightened money laundering risk. Though due diligence rules exist, many of the world’s biggest banks have been implicated in cases of corruption, tax evasion and money laundering, and enforcement of anti-money laundering rules is still generally regarded as weak. Activists have called for senior bank executives to be held personally responsible for breaches, losing bonuses, facing fines, suspension, or potentially even criminal charges. Secrecy is the key element that fosters money laundering, financial criminality, terrorism financing and also tax evasion and avoidance. Financial transparency and information sharing remains a critical element in combating these problems.

There are major challenges with corporate tax contributions, with current rules allowing multinational corporations to manipulate their declared profits using offshore structures and the secrecy these afford, and dodging the tax contributions they should be making. Although a lack of transparency is not the only factor, it is clear that the ability of corporations to shift profits and hide assets from view with no scrutiny has a detrimental impact on the ability of countries to raise revenue and fund public services. This is a particular problem for developing countries for two reasons: firstly as they have a higher dependence on corporate income taxation for revenue and secondly as their under-resourced tax authorities face severe constraints in any attempts to audit multinational corporations and counteract the effects of secrecy.

Several transparency standards related to corporate tax and ownership are being proposed to enable more effective scrutiny. These include a ‘country-by-country reporting standard’ that would require multinational corporations to publicly provide details of their profits, tax paid, turnover and employment on a country-by-country basis. If a large percentage of profit is made in a secrecy jurisdiction, and very little in developing countries, this would be visible under the country-by-country reporting system. This would serve as both a risk assessment tool for tax authorities and an important resource for civil society seeking to hold corporations to account for unethical business practices. Corporate disclosure is also important to allow investors to evaluate a company’s tax strategy and assess companies’ tax risk and exposure with as much information as possible. There are also calls to create public registers of the beneficial ownership of companies, thereby providing information on who ultimately owns and controls a company and who benefits from its profits.

There is no universally agreed definition of corporate social responsibility (CSR). However, looked at simply, societies expect companies to take into account their impact in three dimensions – social, environmental and economic. While taxation has not historically been a central theme in CSR debates, this is now changing. Paying tax is clearly part of the economic dimension. Taxes provide essential public revenues for governments to meet the needs of their citizens. It is the return due to society on public investment - in roads, an educated workforce, the judicial system and so on – from which companies benefit. If companies avoid or evade tax, they are free-riding off benefits provided by others. Also important is that from an economic perspective, tax is properly due to the state in which a company generates its profits, not to those states to which it can relocate its profits for tax purposes.

While aggressive tax planning is not a legal concept, it is widely understood to refer to intensive corporate restructuring - using tax havens – not for any valid business purpose but primarily to reduce tax obligations. Over the past several decades such behavior has become commonplace, with taxes seen as a cost that reduces corporate profits, negatively impacting on the value of shares. The services offered by the ‘big four’ accountancy firms has played a particularly important role shaping and facilitating this business culture. Tax is not a cost, but a distribution out of profits, putting it in the same category as a dividend. As such it is best understood as a return to the (wider) stakeholders in the enterprise. What is more, it is well established in the laws of most countries that corporate directors do not have a duty – fiduciary or otherwise – to minimize tax at all costs. Corporate directors have duties to promote the success of their companies, but within those duties they have wide leeway to consider the social impacts of their decisions. Aggressive corporate restructuring through tax havens to dodge tax is not compatible with true corporate responsibility.

Corruption is traditionally defined as the abuse of public office for private gain. The private sector engages in corruption when agents offer bribes to officials to gain competitive advantage and profit. This may take the form of bribes to win government contracts, gain access to subsidies or privatized entities, to garner lower tax rates or to expedite permits or licenses. Tax justice activists have argued the definition of corruption should be expanded to include tax evasion, because evaded taxes are stolen public assets.

Government contracting is a particularly important area of focus for anti-corruption activists, given there are huge sums of money involved in public procurement processes. Private suppliers are now commonly involved in delivering everything from major infrastructure projects to health service delivery and back office supplies. Transparency in procurement processes is seen as fundamental to combat corruption. Full publication of government contracts can help expose wasteful spending, fraud and also lead to an increase in competition for other contracts. Open contracting – still a relatively new part of the open data movement - aims to enable full transparency and data access to ensure public procurement processes are free from corruption and fraud, and efficiently deliver goods and services. Fair taxation is also an additional element relevant to public procurement processes. Given the scale of multinational tax avoidance and evasion, evidence that the private sector fully complies with its tax obligations can be part of a government’s rationale for choosing providers. Tax justice activists have advocated for local and national governments to adopt tax compliance benchmarks and fair tax principles into public procurement processes.

The concept of progressive (equitable) taxation means taking into account who pays the tax. In a progressive tax system those with the highest incomes will pay a higher proportion of their income in tax; those with the lowest incomes will pay a lower proportion of their income in tax. As such progressive taxation ensures a redistribution of income from the rich to the poor. The redistributive effect of an equitable tax system is one of its most important characteristics. Strong, progressive tax systems would help reduce the high levels of inequality prevalent in many developing countries. Unfortunately developing country tax systems are often not equitable and many rely heavily on sales taxes. This may be exacerbating income inequality as a result. Reliable data is often scarce, as most developing countries do not gather ‘tax incidence’ data and do not undertake comprehensive analysis of the equity of national tax systems.

Taking an equitable approach to taxation means seeking a heavier reliance on taxes on income and assets. This implies a focus on corporate income taxation (CIT), including addressing the proliferation of often harmful corporate tax incentives, confronting tax avoidance and tax evasion and reforming traditionally weak areas such as natural resource taxation. It also implies improving personal income taxation (PIT), property and land taxation, and strengthening capital gains and inheritance taxes as well as other types of wealth taxes.

Tax compliance refers to the degree to which a taxpayer complies (or fails to comply) with the tax rules of his/her country, for example by declaring income, filing a return and paying the tax due in a timely manner. It is necessary, therefore, for taxpayers to be educated about how to pay taxes and for the system to be simple to use to facilitate declarations and payments. A high level of trust is also a fundamental component. The level of tax compliance is higher where citizens trust that their government will use the money properly, investing visibly in public services and infrastructure that meet their needs. Public sector corruption and fraud deters tax compliance, as does wasteful public spending which does not prioritize the needs of the majority of a country’s citizens. It is also the case that widely perceived unfairness in tax rules deters tax compliance. If elites are not paying the personal and corporate income taxes due as a result of skewed legislation, widespread incentives and/or weak enforcement, then the majority of citizens in the country are likely to avoid paying taxes where they can.

In many developing countries tax compliance is low and enforcement efforts poor. Tax authorities often struggle to enforce personal income taxation of high earning, self-employed professionals and the taxation of high net worth individuals in many developing countries, particularly in sub-Saharan Africa, is extremely poor. The abusive tax practices of many companies also contributes to lower compliance and is an area where tax authorities often find enforcement difficult, particularly if multinational corporations are involved. Businesses in developing countries also sometimes improperly make use of the informal sector to escape tax. The capacity of tax authorities in developing countries to investigate and penalize tax evaders is often low. Complex tax audits of multinationals is a very challenging area where enforcement is difficult, particularly in sectors such as telecommunications and banking where tax authorities are ill equipped and where the highly technical capacity building services are rarely offered.

There are many forms of tax avoidance and evasion that affect the ability of developing countries to mobilize revenue. Individuals and corporations may be involved in evading VAT (more common in developing countries without robust VAT systems), as well as avoiding and evading a range of income and asset taxes. Both individuals and corporations are involved in moving money offshore to hide income and assets from developing country tax authorities.

The commercial tax evasion element is very significant for developing countries, given their relatively undiversified economies and higher dependence on corporate income tax from more limited sources. Research shows that abusive tax practices can have huge impacts on developing country economies. As weaker tax authorities in developing countries have a lower capacity to combat tax dodging than those in developed countries, the need for a reform of global tax rules to deliver increased transparency, simplicity and fairness in corporate tax contributions is even more urgent.

Tax administration refers to all of the functions of modern tax authorities in relation to managing and administering national taxation systems. This includes functions such as taxpayer identification, all taxpayer services related to declarations and payments (now often offered electronically), as well as the efforts to tackle non-compliance. The tax capacity building programs of multilateral and bilateral organizations generally offer long-term accompaniment and technical assistance to improve tax administration, including significant investments in management information and IT systems. Tax capacity building efforts by donors are generally seen as hugely important foundational investments that have been reasonably effective at delivering more robust systems and increased revenues. However, they are often less successful when it comes to addressing tax equity and transparency concerns, which are not well built into capacity building approaches. Tax capacity building programs can also do little to address problems related to abusive tax practices and the use of secrecy jurisdictions. This is unlikely to change under the current international framework, given it is so heavily weighted in favor of multinational corporations’ interests over the ability of developing countries to collect tax revenue.

Increasing attention is being paid to the role of taxation in state-building in developing countries and the governance aspects of taxation. Tax is the foundation of the nation state. Without the ability to raise revenue, the state cannot provide security for its citizens, meet their basic needs, nor foster economic development. However, taxation is not simply important because of the revenue it raises. It is also critical as it determines the balance between the accumulation of income and wealth and redistribution – thereby determining levels of inequality in society.

Taxation is the basis of the social contract: citizens pay their taxes and demand services in return, making taxation inextricably linked to governance and accountability. A country with low ‘tax morale’ will have citizens unwilling to comply with paying their taxes, often due to an unaccountable or corrupt government that is failing to meet their needs. A country with a very poorly functioning tax system (and highly dependent on external aid) is also likely to be less accountable to its own citizens for its spending choices and service delivery. Building effective taxation systems can therefore also build states’ accountability to their citizens. Engaging taxpayers in national tax dialogues and enabling citizen participation in both tax and budget decisions, is increasingly an important part of donors’ participation and accountability programs.

It is widely accepted that the current global taxation rules are not fit for purpose. The existence of tax havens that offer financial secrecy and low, or zero, tax rates provides an environment which encourages aggressive tax planning especially by wealthy elites and multinational corporations and facilitates illicit financial flows, draining resources particularly from developing countries. Multinational corporations can easily manipulate declared profits and hide assets offshore and financial secrecy enables the proceeds of corruption, bribery and crime to be hidden from view. These problems have gained prominence lately through a series of media and research reports shining a spotlight on the very low tax contributions of multinational corporations. The leak of the Panama Papers also galvanized public opinion against the existing global financial architecture that undermines all countries’ revenue collection efforts. Developing countries suffer particularly the effects of poor global taxation rules, as well as losing out under the many bilateral taxation treaties that favor developed countries’ interests.

Some progress has been made as a result of years of advocacy related to global tax rules by tax justice activists. The OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan is one example. However, although BEPS does include measures that seek to curb multinationals' aggressive tax planning - as well as constructing new standards for international tax treaties - it does not seek to fundamentally reform international corporate tax rules in relation to how corporate taxes are allocated between countries. Efforts continue to develop fair international taxation standards and systems.

Corruption is traditionally defined as the abuse of public office for private gain. This can occur when a public official solicits or extorts a bribe, or through the theft of state assets or diversion of state revenues. Political corruption is a manipulation of policies, institutions and rules of procedure in the allocation of resources and financing by political decision makers. It undermines tax-raising efforts as revenue is lost. As corruption corrodes the social fabric of society, it also undermines people’s trust in the political system and erodes tax morale. This makes voluntary tax compliance less likely and undermines long-term revenue raising efforts.

Transparency is widely seen as an antidote, shedding light on rules, plans, processes, actions, expenditure decisions and financial flows, and guaranteeing the public can hold the government to account. Financial transparency efforts are particularly important given corrupt politicians need banks to launder stolen assets. As such, the role of the finance industry in facilitating financial crimes and the efforts of law enforcement and governments to combat financial crime is relevant here. Whistleblowing is also recognized as having a role in corruption-fighting efforts. Whistleblower protection laws are important to ensure whistleblowers are afforded proper protection and disclosure opportunities.

Tax avoidance, tax evasion and money laundering by multinational companies, wealthy individuals and criminal organizations undermine the rule of law, as well as the concept of equality before the law. Law enforcement efforts are indispensable, but have been to date generally weak, uncoordinated and lacking in a strong and genuine commitment to enforcement in this area. A raft of anti-money laundering laws exist, requiring banks to do due diligence to identify their customer and turn down illicitly acquired funds. The little known, inter-governmental body – the Financial Action Task Force (FATF) - sets the global standard for the anti- money laundering rules that are supposed to prevent flows of corrupt funds. However, even FATF member states are not fully compliant with its recommendations, with, for example, most of the 24 countries not requiring banks to perform enhanced due diligence on politically-exposed persons (PEPs) – that is senior government officials or their relatives and associates, who because of their access to state resources are a heightened money laundering risk.

Apart from the lack of enforcement of existing obligations, cooperation between law enforcement authorities (police, prosecutors, judges), tax administrations and anti-money laundering bodies is not considered efficient. The traditional perception has been that tax evasion, even of a criminal nature, was somehow different from money laundering and other financial crimes, and, as such, should be fought against by different public bodies, sources of information and procedures. This perception has now changed and there has been a move towards approaching these issues by sharing available information at the government level between financial intelligence units, tax administrations and other governmental bodies with associated competencies – taking a ‘whole of government’ approach to law enforcement. Steps in that direction have been taken at national level and are being recommended by international organizations, including the OECD. Secrecy is the key element that fosters money laundering, financial criminality, terrorism financing and also tax avoidance. Financial transparency and information sharing remain critical for law enforcement, as does whistleblower protection when financial crimes are exposed.

Government procurement is a particularly important area of focus for anti-corruption activists, given there are huge sums of money involved in public procurement processes. Private suppliers are now commonly involved in delivering everything from major infrastructure projects to health service delivery and back office supplies. Transparency in procurement processes is seen as fundamental to combat corruption. Full publication of government contracts can help expose wasteful spending, fraud and also lead to an increase in competition for other contracts. Open contracting – still a relatively new part of the open data movement - aims to enable full transparency and data access to ensure public procurement processes are free from corruption and fraud, and efficiently deliver goods and services. Fair taxation is also an additional element relevant to public procurement processes. Given the scale of multinational tax avoidance and evasion, evidence that the private sector fully complies with its tax obligations can be part of a government’s rationale for choosing providers. Tax justice activists have advocated for local and national governments to adopt tax compliance benchmarks and fair tax principles into public procurement processes.

The promotion of good governance and government accountability is an integral part of many donor-funded development programs. Accountability programs generally support citizen participation and engagement with government to evaluate budgeting, planning, expenditure and service delivery. Programs can be national or local in nature, including national budget analysis to scrutinize policy choices as well as the equity of budget allocations between and within sectors and locations. Programs often also include public expenditure tracking and efforts to monitor the quality of local service provision. While accountability programs have focused strongly on budget and service provision over many decades, the issue of revenue raising is now increasingly prominent in citizen participation efforts. Citizen taxpayers are supported to: engage on the substance of tax reforms, to encourage governments to confront tax abuses and to urgently improve the effectiveness of tax collection efforts, as well as to promote redistribution of wealth and income via the tax system.

Under the International Covenant on Economic, Social and Cultural Rights (ICESCR), states have agreed to ‘take steps, individually and through international assistance and cooperation, especially economic and technical, to the maximum of its available resources, with a view to achieving progressively the full realization of the rights recognized in the present Covenant’. This obliges states to improve universal access to basic goods and services including food, health, education, housing and social security. The realization of such rights is impossible without fiscal policies that guarantee adequate tax revenue, including efforts to counter tax abuses that directly deprive governments of revenue. The concept of progressive realization of these rights is important. It implies states should be held to account with specific tax- and budget-related benchmarks. The provision of sweeping tax incentives and subsidies as part of poorly designed tax and investment policies (or as a result of bribery and corruption) are an example of state failure to maximize all available resources. Similarly failures to properly audit and counter tax abuses are also breaches of states’ obligations to fulfill ESCR. Many developing countries still have very poorly functioning tax systems in relation to income, wealth, property and land taxation. These are serious shortcomings in light of the obligation to maximize resources.

Currently, there are no mechanisms to provide individual remedies for violations of economic, social and cultural rights. The Committee on Economic, Social and Cultural Rights − the treaty body 
that is responsible for the ICESCR − receives periodic reports from states and provides comments and observations about how the state can improve its implementation of the Covenant. Though it has not addressed tax abuses directly in the past, it is conceivable that it could address tax abuses in the future, either in its consideration of the periodic report of a particular state or in a general comment. Similarly national and human rights organizations could take tax abuses into account when addressing the human rights performance of states through the Universal Periodic Review (UPR) of the UN Human Rights Council.

The concept of progressive (fair) taxation means taking into account who pays the tax. In a progressive tax system those with the highest incomes will pay a higher proportion of their income in tax; those with the lowest incomes will pay a lower proportion of their income in tax. As such progressive taxation ensures a redistribution of income from the rich to the poor. This happens once through the tax system, and then once again when this revenue is used to support (progressive) public spending that directly benefits poor people. One of the main factors that dictate how progressive a tax system is in practice is its reliance on indirect (sales-based) taxes, versus the direct taxation of income and assets. While indirect sales taxes tend to weigh more heavily on the poor who consume most of what they earn, it is the direct taxation of income, wealth and property that has the greatest potential to reduce economic inequality and contribute to a poverty reduction agenda. The way in which revenue is raised does not play a neutral role in relation to human rights. A regressive tax system, which taxes the poor more heavily in comparison to the rich, will aggravate the human rights deficit that governments must try to alleviate.

Businesses have a responsibility to respect human rights through their corporate structures and operations. This responsibility is derived from a variety of sources including: the UN Guiding Principles on Business and Human Rights; the UN Guiding Principles on Extreme Poverty and Human Rights; the UN Principles for Responsible Contracts; the UN Global Compact and the OECD Guidelines for Multinational Enterprises. The OECD Guidelines have the most specific guidance on taxation, referring to good tax governance, tax compliance and conforming to transfer pricing principles. These principles and standards are an important foundation that could assist in the articulation of new due diligence requirements related to the tax practices of multinational corporations in different economic sectors, including with reference to ‘enabling enterprises’ such as those offering financial, accounting and legal services.

While businesses should be aware that using aggressive tax planning to siphon funds out of developing countries actively diminishes funds to reduce poverty and has negative impacts on human rights, there is still a lot more to be done to ensure companies think of taxes as directly material to their human rights' risks. Tax issues are entering the debates, but are not yet addressed systematically in ‘business and human rights’ discussions, forums, standards and internal policies. There is a UN Working Group on Business and Human Rights that looks at all of the human rights responsibilities of businesses. This could be a useful forum for advancing the global conversation about corporate tax abuses from a human rights perspective, and eventually for developing policies and procedures for responsible tax planning and practices by multinational enterprises.

The Maastricht Principles on Extraterritorial Obligations of States in the area of Economic, Social and Cultural Rights establishes that states have an obligation of international cooperation and technical assistance to support the realization of human rights. These principles are useful for the analysis of international cooperation in tax matters, including with respect to the need for exchange of information to confront tax abuses and the existence and impact of secrecy jurisdictions. They require states to be mindful of the impacts that their tax laws and policies (e.g. bank secrecy) have on the citizens of other states. Actions of states that encourage or facilitate tax abuses, or that deliberately frustrate the efforts of other states to counter tax abuses, could constitute a violation of their international human rights obligations, particularly with respect to economic, social and cultural rights. As such the role of secrecy jurisdictions is a major concern. Conversely states that contribute towards greater tax and financial transparency and effective exchange of information – including with developing countries – are supporting human rights. Overall, the extraterritorial obligations of states point towards the need to balance individual and collective actions to create a global environment that is conducive to the widespread fulfillment of economic, social and cultural rights.

Lawyers – alongside accountants and bankers – form part of the offshore service industry, providing their skills in tax, corporate structuring, financial and estate planning. Some law firms will act as enablers, facilitating tax avoidance and evasion. Lawyers’ professional bodies may also be involved in lobbying to maintain the legal structures that support the status quo. As such, lawyers may be complicit in facilitating illicit financial flows and taking advantage of opportunities for tax abuses. The concept of attorney-client privilege – an important legal principle embedded in many codes of professional conduct - is problematic in the context of tax abuses.

Lawyers – and their professional associations - have a special role in addressing tax abuses. They can help resolve a number of important legal questions related to tax abuses and should be debating issues such as: the limits to privilege and confidentiality if it is being used to encourage, aid or abet tax abuses and other illicit financial flows; the line between legal tax avoidance and illegal tax evasion; and the proper role for the legal community in this area. As law firms are also businesses, they are subject to business and human rights principles. As such they should be implementing proper due diligence standards to reflect their responsibilities in all areas including taxation. The International Bar Association’s Human Rights Institute has formed a Task Force on Illicit Financial Flows, Poverty and Human Rights to reflect on some of these questions.

International tax rules have many weaknesses, with much scope for manipulation and illicit behavior under the current system. Countries that operate as secrecy jurisdictions also undermine the taxation efforts of other countries. New, simpler rules are necessary to confront tax dodging and promote fairer taxation standards and systems for all. Given the extent of concern the OECD was mandated by the G20 to create a ‘Base Erosion and Profit Shifting’ (BEPS) Action Plan. It has recommended a number of actions related to aggressive tax-planning schemes. One of its most positive outcomes is that it established a template for country-by-country reporting. Companies will disclose how much profit they declare in each country where they operate, and how that relates to measures of real activity, such as employment and sales. This will, for the first time, give tax authorities an overview of the multinational as a whole, and help to reveal how much profit a company is booking in tax havens. However, each multinational will only be required to file reports with its home country tax authority and reports will not be made public. This creates significant obstacles for access, especially for tax authorities from developing countries. BEPS has also been criticised for increasing complexity in international tax rules, maintaining the much-criticized ‘arm’s length principle’ (which insists that tax authorities treat the subsidiaries of multinationals as independent entities) and legitimizing the ‘patent box regime’ a structure which was already being abused by multinational corporations.

Alternative frameworks being further researched include: forms of minimum taxation, presumptive taxes (where profit margins are set with industry in advance), and unitary taxation/formulary apportionment, under which a formula based on sales, payroll, and other aspects allocates income to different jurisdictions to reflect the weight of economic activity in each. Hybrid schemes combining approaches are also possible. Relevant actors include: the UN Tax Committee, given its track record of looking at alternative taxation rules, and the Independent Commission for Reform of International Corporate Taxation (ICRICT), which brings together influential thinkers from developing and developed countries to promote a more inclusive discussion of international corporate tax reform.

Double taxation occurs when a taxpayer (particularly a multinational enterprise) pays tax on the same corporate income earned from economic activity twice, in different countries: once to the tax authorities of the foreign country which is host to the economic activity, and once to the tax authorities of the home country, in which the company is domiciled. By burdening economic activity in a foreign country twice, double taxation can represent an obstacle or barrier to foreign investment. A double taxation agreement (DTA) made between two countries divides up taxing rights on cross-border income between them, primarily for the avoidance of double taxation. There are two models often used for drafting these agreements - the OECD and United Nations models. The OECD model treaty is widely used despite promoting residence taxation, which benefits developed countries since it is mainly developed country investors who invest in developing countries, not the other way around. The UN model treaty, on the other hand, provides more room for source-based taxation, which is more beneficial to developing countries being net capital importers.

Developing countries can also lose out due to the improper use of DTAs. This arises with ‘treaty shopping’: companies are able to register in the jurisdiction of their choice simply to take advantage of a low or zero tax rate in relation to the cross border flow of income from the jurisdiction they are planning to invest in. Valuable assets, such as oil concessions or telecoms licences, may be owned by other affiliates formed where no capital gains tax would apply when they are sold (e.g. Mauritius). Greater attention is now being paid to this issue and some developing countries are analyzing their DTAs, quantifying tax losses due to these arrangements, and cancelling or renegotiating arrangements if necessary.

The financing needs of developing countries are extremely large. Globally the financing needed to achieve the 2030 Agenda for Sustainable Development are trillions of dollars annually. The new global social compact aims to provide social protection and essential public services for all. Governments are being encouraged to set up nationally appropriate targets particularly for investments in health, education, energy, water and sanitation and social protection systems. A major conference held on financing for the SDGs was held in Addis Ababa and gave rise to the Addis Ababa Action Agenda (AAAA). This agenda, part of the Financing for Development process, calls for additional tax revenues to deliver this new social compact, with both improved domestic tax administration and strengthened international tax cooperation seen as essential to ensure adequate financing is available. As part of this agenda countries are also being encouraged to set nationally defined targets and timelines for enhancing domestic revenue. Commitments are also called for with regard to international cooperation on tax and a crackdown on tax evasion, the fight against illicit financial flows and corruption, the return of stolen assets, transparent budgeting and transparent public procurement. There are serious concern, however, that the while the world is coming up with these new development ambitions they are not backed with any new development financing.

Equitable budgeting may also be referred to as ‘pro-poor budgeting’ or others may use the term ‘progressive expenditure’. The basic concept behind these terms is that the public budget must be fair and must promote equitable development, rather than for example giving preference to the narrow interests of particular groups. Equitable budgeting, at its most basic, implies that the largest number of people possible benefit from public spending and that special efforts are made so that the poorest and most vulnerable are particularly supported. It also implies fair geographic distribution, with locations that are particularly poor and marginalized receiving extra public investments.

The concept of equity is the foundation for much of the budget advocacy of CSOs. By tracking public spending and conducting budget data analysis it is possible to uncover the underlying priorities and biases of the government’s budget. The availability of budget data is a central pre-condition. Civil society needs to be able to publicly access disaggregated budget data – both in relation to budget allocations and expenditure – to hold governments to account in this area. Advocacy around public budgets is now a huge area of intervention around the world. Citizens' groups, civil society organizations and networks and think tanks are involved in budget advocacy, calling for better budget allocations to serve the interests of specific groups such as, for example, women, children, people with disabilities and the poor. Sometimes civil society organizations also formulate a comprehensive parallel budget that is more socially equitable and inclusive.

In the development field it is increasingly seen as important for civil society to be involved in monitoring public budgets, and the quality of public service provision, as part of participation and accountability programs. While budget advocacy can influence how the budget is allocated, it is most important to see what it ends up delivering – whether funds are actually spent as planned and what the impact is on the quality of life of a country’s citizens. Citizen groups and civil society organizations are now often involved in ‘follow the money’ initiatives, monitoring how funds are spent to support local service delivery – such as local primary schools or health clinics – and what changes are taking place. There are many methodologies for this type of monitoring including public expenditure tracking surveys (which measure the amount of funds received at each point in the chain of public service delivery, from a nation’s treasury to the classroom or health post), social audits, the use of report cards to assess service delivery, and various other types of local monitoring programs.

Income inequality is a hot topic. The economic position of the 99% compared to the richest 1% is a well-known point of reference and the gap between the ‘super-rich’ and the rest is increasingly researched and documented. While income concentration trends vary across countries, it is the case that income and wealth inequality have increased in most countries. In many major economies including the US and many of the world’s most populous countries - China, India, Indonesia, Malaysia, Nigeria, Pakistan and South Africa- income inequality trends are worsening. Research from the University of California at Berkeley shows that in the US, since 2009, the top 1% has captured a staggering 95% of total income growth and lopsided income growth is a long-term trend. Growing public concern over rising inequality has reinvigorated academic debates about how much inequality matters and the role of tax systems and tax havens in driving the growth of inequality. It has also contributed to inequality reduction being a central theme in the 2030 global Agenda for Sustainable Development.

Income inequality matters as it is economically inefficient. Research shows it both lowers growth and reduces the rate at which growth is converted into the reduction of poverty. Inequality is also socially inefficient. Research from developed countries shows very clearly that more unequal societies, at similar income levels, tend to do worse consistently on all sorts of measures of wellbeing – from life expectancy and other health measures such as rates of obesity, mental illness and infant mortality. More unequal societies also have less social mobility, lower scores in maths, reading and science, higher rates of property crime and violent crime, and lower reported levels of happiness, civic participation and trust. Evidence is emerging of similar, separate impacts of income inequality in developing countries: the UNDP has found that the distribution of income (rather than even income levels themselves) is a factor driving social inequalities in education, health and nutrition. Efforts to reduce income inequality – including through use of the tax system – and to reduce social inequalities are urgently needed to improve the wellbeing of all citizens.

The financing needs of developing countries are extremely large. Globally the financing needed to achieve the 2030 Agenda for Sustainable Development are trillions of dollars annually. The new global social compact aims to provide social protection and essential public services for all. Governments are being encouraged to set up nationally appropriate targets particularly for investments in health, education, energy, water and sanitation and social protection systems. A major conference held on financing for the SDGs was held in Addis Ababa and gave rise to the Addis Ababa Action Agenda (AAAA). This agenda, part of the Financing for Development process, calls for additional tax revenues to deliver this new social compact, with both improved domestic tax administration and strengthened international tax cooperation seen as essential to ensure adequate financing is available. As part of this agenda countries are also being encouraged to set nationally defined targets and timelines for enhancing domestic revenue. Commitments are also called for with regard to international cooperation on tax and a crackdown on tax evasion, the fight against illicit financial flows and corruption, the return of stolen assets, transparent budgeting and transparent public procurement. There are serious concern, however, that the while the world is coming up with these new development ambitions they are not backed with any new development financing.

Tax transparency measures include: the automatic exchange of banking information between different countries’ tax authorities for tax purposes; the creation of a country-by-country reporting (CBCR) standard for multinationals which would report on profit and taxes paid (as well as turnover and employment) in every country including secrecy jurisdictions, thereby showing tax haven usage; and initiatives such as the Extractives Industries Transparency Initiative (EITI) which is a voluntary initiative that requires multinationals active in the extraction of oil, gas, minerals and other natural resources to disclose all revenue payments to governments. While the first measure would provide financial information that would only be available to tax authorities, CBCR and EITI are initiatives that, by design, seek to ensure there is public access to financial data.

There has already been significant progress introducing CBCR as a formal legal standard. It has been introduced by the OECD and will require all multinationals of a certain scale to report country-by-country information. However, the OECD standard only asks for information to be privately submitted to the tax authority in the multinationals’ headquarter country, rather than publicly releasing information. As such citizens cannot directly hold large corporations accountable or monitor whether their tax authorities are enforcing proper and fair tax rules. In addition the narrow requirement that data is provided only to the tax authority in a multinational group’s headquarters jurisdiction, is likely to exclude low-income countries from access to information. However, multiple CBCR standards have also been introduced elsewhere, including public CBCR for extractive sector companies in both the EU and US, and for financial institutions in the EU (under the EU Capital Requirements Directive IV). Discussions on the publication of CBCR data are also ongoing in a range of EU member states, including France, the UK and the Netherlands, and at the level of the EU Parliament and EU Commission.

The term beneficial ownership refers to the real owner of a company. Anonymous companies (also called phantom firms or shell companies) are entities used to disguise the identity of their true owner who ultimately controls and profits from the company. They are the ‘beneficial owners’. In most countries around the world it is possible to open a company and not provide any information on the true owner. To make matters worse an anonymous company can be listed as the owner of another anonymous company, creating layers of secrecy behind which it is possible to move and shelter money and assets. The lack of transparency around beneficial ownership enables tax evasion by companies and individuals, and money laundering by criminals and corrupt officials who are able to move money undetected. The solution proposed by transparency activists is for countries to collect beneficial ownership information on companies, trusts, and other legal entities that are registered within their borders, and make information publicly available in central registers. If ownership information was available, investigators around the world, journalists, and civil society could increase scrutiny of corporate ownership structures and more effectively hold corporations accountable for aggressive tax planning and tax evasion.

Multiple jurisdictions have now begun to introduce public registers of the beneficial ownership of companies, including a range of commitments from the UK, Afghanistan, France, Germany, Indonesia, New Zealand, Norway, Denmark, the Netherlands and Nigeria. There is also a pan-EU initiative through the revision of the Anti-Money Laundering Directive meaning all EU member states have to create a register, though not all may make these public. A voluntary initiative started in 2016 by a group of leading international organizations, also seeks to create a Global Beneficial Ownership Register. The Extractives Industries Transparency Initiative (EITI) has also brought in a new requirement that companies that bid for, operate or invest in extractives must publicly disclose the identity of their beneficial owners. As a result, 20 EITI countries have committed to making beneficial ownership data available through a public register.

Open data is data that can be freely used, re-used and redistributed by anyone. To meet open data standards, data should be available in a convenient form (simple, accessible and in a machine readable format). The term ‘open’ also refers to ‘interoperability’ – the idea that diverse systems, organizations and datasets need to be able to work together to ensure the data being shared is genuinely useful. The open data concept refers to many different types of data, particularly government data that - once public - can improve transparency, citizen participation and state accountability. The Global Open Data Index tracks the state of government open data, assessing the publication of a whole range of data, including: government budgets, demographic and economic indicators, procurement tenders, election results and company registers. Numerous initiatives related to budget data exist, including the World Bank’s Open Budget Portal, initiatives under the Open Government Partnership and a number of country-level open budget initiatives.

Although there has been a large focus on budget data, there are other examples such as open contracting data related to public procurement and the international aid transparency initiative (IATI). Open contracting aims to ensure public procurement processes are free from corruption and fraud, and efficiently deliver goods and services. The IATI provides a framework for publishing data related to development and humanitarian resources in electronic format on the IATI Registry, with the aim of increasing aid effectiveness. The Extractives Industries Transparency Initiative (EITI) – a global standard to promote the open and accountable management of extractives resources – is also relevant. EITI countries require companies extracting oil, gas and minerals to publish what they pay in taxes and royalties. Although the EITI has historically produced country reports reconciling company and government information, it has not produced information in open data formats. Moves are ongoing to develop the tools, open platforms and data portal to do this. Open data is not only concerned with government data. OpenCorporates provides the largest open database of companies and company data in the world and the Open Company Data Index assesses how countries around the world treat company registration information.