Tax revenue won't solve the multiple crises facing the world's most vulnerable, but governments are justifiably concerned about a so-called global tax deal's limitations, said Attiya Waris, a United Nations independent expert, who also said human rights abuses potentially occurred related to the negotiations. Last October, officials from 137 of the countries in the Organization for Economic Cooperation and Development's inclusive framework of 141 jurisdictions signed a political statement supporting the two-pillar solution to address tax challenges in the digital economy.
"The world is in a state of multiple crises and although money is not the whole of the solution, very often it can really alleviate a crisis," Waris, who teaches at University of Nairobi School of Law, told the audience during a virtual event called Uncovering Offshore Funds: Opportunities to Advance Human Rights.
Waris said she and three other independent experts appointed by the U.N. Human Rights Council warned of potential human rights abuses in a letter dated March 30 to Pascal Saint-Amans, the OECD's top tax official. They also sent the letter to leaders at prominent intergovernmental organizations like the Group of 20, Group of 24, Group of 77 and the European Union, she said.
"I, recently, together with other mandate holders, wrote a letter to the OECD questioning human rights abuses, as far as access to information was concerned, from a human rights perspective, as they continue to debate and discuss issues around digital taxation and the multilateral convention," Waris said.
Waris said only the OECD had responded so far, but that "it's difficult to understand what information we are going to use from that response to actually better understand the challenges facing least developed countries and developing countries."
The experts' letter alleges a human rights violation may have already occurred, is ongoing, or has a high risk of occurring during the wealthiest and most powerful nations' program to bring less developed countries into the inclusive framework base erosion and profit shifting.
Last October in Paris, the OECD hosted officials from the inclusive framework to sign a statement supporting model rules to reallocate tax payments on 25% of profits above a 10% margin from roughly the 100 most profitable tech companies in exchange for a permanent, broad ban on digital services taxes through 2023. A second pillar of the tax deal, as packaged by the OECD and G-20, would allow authorities in a multinational corporation's headquartered jurisdiction to enforce a 15% minimum corporate tax rate on profits booked anywhere in accounts.
Several panelists said countries' fiscal needs have changed since the agreement was signed. The COVID-19 pandemic and worsening inequality are expected to push 263 million people into extreme poverty in 2022, reversing two decades of progress in that area, according to the event's host, Eryn Schornick, a strategic adviser at the Financial Transparency Coalition.
"We're making the case that rights require resources, but at the same time, we all understand the need to counter those who are stifling meaningful progress," Schornick told Law360 following the event.
Schornick's co-host, Djaffar Shalchi, founder of Millionaires for Humanity, said more than 56 million people have financial assets worth at least $1 million, which represents 46% of the world's wealth.
"We are on our way to an incredible, insane world," Shalchi told the audience.
Each millionaire and billionaire has benefited from generations of public investments, Shalchi said, so in order to give back to society ethically and morally, they must repay through taxes, not philanthropy.
The U.N. experts told Saint-Amans, director of the center for tax policy and administration at the OECD, that the two-pillar solution has positive elements but could end up mainly benefiting a select number of high-income countries while others lose revenue, according to the letter.
Saint-Amans declined multiple requests to share his response to the U.N. experts' letter addressed to him and to contextualize the information presented therein.
However, Law360 obtained Saint-Amans' reply to the U.N. experts from a source familiar with the matter.
"We have been very surprised by and we strongly disagree with the overview and concerns as presented in your communication," Saint-Amans told the U.N. experts, according to the letter. "We cannot agree with the assertion that the discussions taking place ... could be considered to be an actual or potential violation of human rights or a retrogressive measure under the International Covenant on Economic, Social and Cultural Rights."
The U.N. independent experts said many stakeholders have expressed concerns about the global tax deal's "scope and contents" — specifically regarding the political agreement reached in October.
Model rules for both pillars say they require a multilateral treaty to be enacted, which typically happens when a critical mass of countries deposit instruments of ratification in order to function as intended, including an element designed to attract developing countries to implement Pillar Two: the subject-to-tax rule. But in the U.S., the federal government has publicly backed away from at least nine major multilateral accords reached by another branch of government just during the past three decades.
The United Kingdom, France, Italy, Spain, Austria and Turkey all signed a separate agreement with the U.S. Treasury promising to scrap DSTs already in place with the understanding that President Joe Biden's administration could enact the two-pillar solution.
Ricardo Martner, a chairman of the Independent Commission for the Reform of International Corporate Taxation, told the audience that his organization tried to guide officials in the 141-jurisdiction inclusive framework toward "measures that can be really useful to eliminate the tax havens" during negotiations.
"I like to call them 'hideouts', because that's what [tax havens] really are, that's where [people] hide things," Martner said.
"Financial secrecy is one of the main factors that explain why the current system works improperly and benefits the powerful," Martner told Law360 after the meeting. "Transparency measures are a fundamental ally" for reforming the international tax system, according to the economist.
Martner said the war in Ukraine has provoked Western governments into action on financial secrecy, including establishing an intergovernmental task force on implementing sanctions on wealthy individuals in Russia.
For the OECD and G-20's grand tax compromise to function as publicized, Saint-Amans has said the U.S. Senate will need to ratify a multilateral treaty — a process that requires support from two-thirds of senators and a sitting president. So far, Biden has been unable to secure a simple majority of federal lawmakers from his own Democratic Party to pass his agenda, which includes elements of the global tax deal.
During the inclusive framework discussions, ICRICT and other organizations initially supported a minimum corporate tax rate of 25%, which they argued would be more impactful, especially for the most vulnerable governments. The average corporate tax rate weighed by gross domestic product among the OECD's member states last year eclipsed 25%, while governments in lower-income countries impose rates of 30% or higher.
However, before the signing ceremony, a longtime critic of Biden's proposed 15% minimum rate, Irish Finance Minister Paschal Donohoe, managed to coax the deal's drafters into lowering ambitions to raise the rate during future re-conventions, according to his own account. At the same time, four major developing nations that actively participated in negotiations withdrew their support: Nigeria, Kenya, Pakistan and Sri Lanka.
In response to a question from Law360, Waris told the audience that she and other U.N. experts would allow the intergovernmental organizations they addressed more time to respond.
Waris said she hopes countries take her human rights investigation seriously so she can help bring more information to light.
"That letter allows you to measure political will," Waris said. "There's absolutely a tension between tax justice and human rights."
While she waits for responses to her investigation, Waris said she will focus on a report covering their findings that's scheduled to be published in October.
--Editing by Haylee Pearl.
Correction: A previous version of this story misstated the group that appointed the independent experts. The error has been corrected.
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