By Liz Nelson
The United Nations Independent Expert on the effects of foreign debt and human rights has released a strong statement on the ethical responsibility of corporations in the wake of the Paradise Papers revelations. The current Independent Expert, Juan Pablo Bohoslavsky has said ““Corporate tax abuse undermines social justice and human rights worldwide.” His remit includes monitoring the impact of illicit financial flows on human rights and here he helpfully steers away from the immediate obsession with celebrity and individual greed, instead focusing on the systemic flaws of the global system, in particular calling out “the law firms that facilitate tax avoidance schemes must assume their responsibility.” It is encouraging that the UN is signaling an awareness and understanding of the devastation reaped globally by Illicit finance, tax abuse and financial secrecy. We share his statement here in full:
Paradise Papers: States must act against abusive tax conduct of corporations – UN human rights expertsGENEVA (9 November 2017) – International corporations responsible for systematic tax abuse should be downgraded by rating agencies and investment funds in their environmental, social and governance performance, UN human rights experts have said, as information from the leaked Paradise Papers continues to be made public.
“States must stop harmful tax competition amongst each other and work together to stop unethical tax avoidance schemes for wealthy individuals and international corporations. Corporate tax abuse undermines social justice and human rights worldwide,” said Juan Pablo Bohoslavsky, whose remit as a UN Independent Expert includes monitoring the impact of illicit financial flows on human rights.
The Paradise Papers have exposed systematic tax avoidance schemes by well-known international corporations, making use of tax havens in places such as Bermuda, the Cayman Islands, and the Isle of Man.
“We call on businesses to assume their corporate responsibility, in line with the UN Guiding Principles on Business and Human Rights”, said Surya Deva, chairperson of the UN Working Group on Business and Human Rights. “All business enterprises have a responsibility to avoid adverse human rights impacts caused or contributed by their tax evasion practices”.
The experts stressed how business enterprises should comply with both the letter and spirit of tax laws and duly contribute to the public finances of the countries in which they operate, as also clarified in the OECD Guidelines for Multinational Enterprises.
The experts note that the series of scandals, including the Luxembourg and Bahamas leaks, the HSBC files, the Panama Papers, and now the Paradise Papers, made it clear there were widespread practices of tax abuse that had to be addressed.
“Wealthy individuals and international corporations are continuing to engage in unethical practices, reducing their tax burdens to minimal levels by using tax havens, which undermines the realisation of human rights” said Mr. Bohoslavsky.
The experts noted that many States are struggling with increased debt levels as tax revenues do not match public expenditure. “Instead reducing spending on social security, public health care, housing or education, Governments should make greater efforts to ensure tax justice,” the experts said
The experts pointed out that corporations use publicly-funded infrastructure to transport and sell their products, employ people who have normally been educated at public expense, and expect their managers and employees to receive publicly-funded health care when they are ill. Yet, corporations shift their profits around to reduce their own tax contribution to a minimum.
The experts also noted that the law firms that facilitate tax avoidance schemes must assume their responsibility.
“The UN Guiding Principles apply to law firms too – they should consider human rights implications of their legal advice given to businesses”, Mr. Deva noted, drawing attention to the Practical Guide on Business and Human Rights for Business Lawyers adopted by the International Bar Association in 2016.
“It is not sufficient for business corporations to ensure respect for human rights and international labour standards in business practices and value chains. These commitments have to extend to taxation, if firms are to be regarded as ethical,” the experts concluded.
The issue of corporate tax avoidance will also be addressed at the UN Forum on Business and Human Rights that will be held in Geneva, Switzerland, from 27 to 29 November 2017.
Published on Tax Justice Network on November 13, 2017.
In response to the latest Paradise Papers revelations, which have seen large multinational companies exposed milking profits offshore, the Tax Justice Network is calling on countries around the world to start to tax the global profits of multinational corporations.
The current system of taxation used by most countries around the world seeks to tax only the local subsidiaries of each company. That encourages companies like Apple and Nike to shift their profits offshore – out of the reach of the tax authorities and into tax havens.
An alternative system of taxation, called “unitary taxation” instead calculates the tax liabilities of companies based on a proportion of the company’s global profits. The formula used to work out the tax is based on the real economic activities company, for example the sales it books in each country.
Unitary taxation is a system already employed in many developed economies such as Canada and some states in the United States.
Unitary taxation would be simple to operate and save tax authorities millions in complex investigations. It would also demand the publication of country by country reports by multinationals, so that we would know how much tax, and how much profits were being made in each country that large corporations operate in.
The Tax Justice Network has produced a full briefing on the issue, which can be downloaded here: http://www.taxjustice.net/wp-content/uploads/2017/11/Unitary-Taxation-TJN-Briefing.pdf
Alex Cobham, Chief Executive Officer of the Tax Justice Network said:
The current tax system is broken beyond repair. After two years of the OECD trying to patch up the system, even its biggest members the EU and US have given up and are looking at alternatives.
If we want to stop companies like Apple taking a bite out of our public services, we need a much better way of taxing multinationals.
Unitary taxation would save governments billions in lost tax revenues – as well as making multinationals and tax authorities accountable to citizens in a completely new way.
Liz Nelson said:
The only people who benefit from our outdated, bloated, tax system are the multinationals who abuse it, and their advisors who make billions dreaming up tax avoidance schemes.
A new simpler way of taxing multinationals is needed to make sure we all know who is paying their fair share.
Published on Tax Justice Network on November 6, 2017
The court handed down a three-year suspended jail sentence and a suspended €30 million (US$35 million) fine for Teodoro Nguema Obiang Mangue, known as Teodorin, who is also Equatorial Guinea’s vice president. The court seized his assets in France valued at well over €100 million.
“This verdict against Teodorin Obiang is further proof that rampant government corruption in Equatorial Guinea has robbed its people of their country’s oil wealth,” said Sarah Saadoun, business and human rights researcher at Human Rights Watch. “The French government should repatriate the money ensuring it goes to key services where it should have been spent.”
The ruling comes after more than a decade of litigation initiated by two French anti-corruption organizations, Transparency International France and Sherpa. It is one of three cases the organizations brought against high-level government officials of different countries for allegedly laundering “ill-gotten gains” in France. It was the first of the three cases to reach a verdict and the first time a French court recognized non-governmental organizations’ standing to file a criminal corruption complaint.
Because the sentence and fine are suspended, they will only go into effect if Teodorin commits another crime in France. He has 10 days to appeal.
Teodorin has been the subject of a number of international money-laundering investigations, and his flamboyant lifestyle has been widely cast as a symbol of brazen government corruption. The huge amount of money looted by members of Equatorial Guinea’s ruling elite contributes to the country’s severe underfunding of health and education.
In 2012 the US Department of Justice calculated that Teodorin had spent US$315 million around the world between 2004 and 2011 on properties, cars, and luxury goods. This is nearly a third more than the Equatoguinean government’s annual spending on health and education combined in 2011, the most recent year for which there is data. At the time, Teodorin was the country’s agriculture minister, earning an official annual salary of less than US$100,000.
The Equatorial Guinean government has vigorously defended Teodorin, claiming that his actions were legal because of domestic laws that permit ministers to do business with the state through their own companies. The government has never investigated the allegations against him.
The president promoted his son to vice president in June 2016, days after a French court ordered him to stand trial, in an apparent effort to use diplomatic immunity as a shield from prosecution. When that failed, the government unsuccessfully sued France in the International Court of Justice to stop the prosecution, claiming it violated Teodorin’s immunity.
The court decision gives the French government control over millions of euro worth of assets seized from Teodorin, including a 101-room mansion on the exclusive Avenue Foch valued at over €100 million, €5.7 million worth of supercars, and millions more euro worth of art, jewelry, and luxury goods, according to the court decision ordering Teodorin to stand trial. France has no laws providing for the repatriation of recovered assets, but Human Rights Watch and other organizations are urging the government to ensure that the funds are repatriated to the country to benefit the people who are victims of official corruption.
In 2014 Teodorin settled a case with the US Department of Justice, which alleged that he bought a California mansion, private jet, and US$2 million worth of Michael Jackson memorabilia with money stolen from the public treasury. He agreed to pay US$30 million without explicit admission of wrongdoing. The settlement mandates that the funds be repatriated for the benefit of the Equatoguinean people, which US authorities are expected to do soon. Switzerland is currently investigating Teodorin for money laundering, and in December 2016 it seized a luxury yacht worth US$100 million and several luxury cars.
Official corruption is rampant in Equatorial Guinea. In 2004 a US senate investigation found that Washington-based Riggs Bank, which held Equatorial Guinea’s government accounts, transferred millions of dollars to companies apparently owned by government officials, including the president. Three members of a Russian family are awaiting trial in Spainon allegations of facilitating the purchase of homes for Equatoguinean officials with the money siphoned from Riggs bank.
The discovery of oil in the early 1990s catapulted Equatorial Guinea from one of the world’s poorest countries to the one with the highest per capita income in Africa. Yet the government has invested only a pittance in health and education and progress on health and education consistently lag behind regional averages. Some indicators, such as vaccination and school enrollment rates, have deteriorated since the start of the oil boom.
In June, Human Rights Watch published a report documenting how the ruling elite siphon off the country’s oil wealth, particularly by owning stakes in companies awarded hugely inflated public infrastructure contracts. Graft and mismanagement exist on such a large scale that they leave little money for health and education.
“The promotion of the president’s son to vice president in an apparent effort to shield him from accountability reflects the culture of impunity in Equatorial Guinea,” Saadoun said. “With today’s verdict, the impunity for Equatorial Guinea’s ruling elite has finally been pierced.”
Published on HRW on October 29, 2017.