The ability of multinational corporations to shift profits between jurisdictions to minimise their tax bills has a profound impact on the global economy. Poor countries are being deprived of huge amounts of revenue that could be channelled into alleviating poverty, as Christian Aid reports. Richer countries are affected too – in the UK for example, estimates of the gap between taxes owed and collected are now as high as £120bn a year, far outstripping planned government spending cuts.
Corporations argue that their behaviour is legal. They are backed up by their lawyers, who say that their mandate is to reduce their client’s tax liability. “Tax avoidance is something that is advocated and taught during legal training,” one lawyer recalled. But growing public anger in rich and poor countries at revenues lost through tax dodging by multinationals and individuals is shifting the goalposts. A recent report by Corporate Citizenship found that the distinction between tax evasion (which is illegal) and tax avoidance (which is lawful) has dissolved in the eyes of governments, NGOs and citizens.
In order to boost revenue from multinationals operating in developing countries, the law could side-step the distinctions between tax avoidance and tax evasion and focus on ‘tax abuse’This approach is being taken by an International Bar Association Human Rights Institute task force, looking into the relationship between illicit financial flows, poverty and human rights. It is asking how a more effective and equitable tax system can help eradicate poverty and what new approaches can be taken, to generate revenue for development and promote good tax governance. It is also investigating whether tax abuses are an infringement or violation of human rights under international law.
The main value of the task force’s work will be making the connection between tax abuse and human rights. It will publish a report in 2013, to encourage lawyers to take up different aspects of the problem. But the task force understands that corporate tax abuses are only part of the problem. Tax abuse by individuals is also a major issue.
Lawyers can support campaigners all over the world who are demanding that governments meet their obligations to collect taxes and enforce existing laws. For example, they have a duty to warn corporate clients about the damage to their reputation that tax abuse can cause. Disputes with tax authorities can drag on for years, costing time and money. Even if it is legal, tax avoidance can generate bad publicity and public outrage, as corporations targeted by UK Uncut have discovered.
Lawyers can also support the moves in the EU and individual countries towards greater exchanges of information and stronger transparency laws. This would go a long way towards ensuring that multinationals pay the right amount of tax in every country in which they operate and that individuals do not abuse tax systems.
· You can read more about this in Fare Shares, a feature on the Lawyers for Better Business website at www.l4bb.org
· Adrienne Margolis is founder and editor of Lawyers for Better Business, a website and network to help lawyers become champions of corporate responsibility for human rights.