INTERNATIONAL TAX: UN Asks OECD To Study Human Rights Impact Of Tax Plans

As published on: law360.com, Friday 12 January, 2024. 

Experts from the United Nations asked the OECD in a letter to study how its plans for a global minimum tax and a reallocation of large companies' tax payments could impact human rights, claiming the package will undermine tax collection in developing countries.

The letter, dated Dec. 22 and published Thursday by the Tax Justice Network, is a follow-up to ongoing correspondence between officials from the Office of the High Commissioner for Human Rights and the Organization for Economic Cooperation and Development's secretary-general. Governments from nearly 140 jurisdictions endorsed the OECD's reallocation plan and the minimum tax, known collectively as the two-pillar solution, most recently in July, and the European Union, Japan and others began implementing the minimum tax Jan. 1.

"The two pillar solution, as it stands, would significantly undermine the revenue collection and taxing rights of low and middle-income countries," the letter said. "Lower levels of revenue collection in developing countries would weaken the states' capacity to fulfill their human rights obligations due to their inability to adequately fund social policies and public services essential for human rights."

The OECD did not immediately respond to a request for comment.

The 15% minimum tax, known as Pillar Two, is expected to increase corporate income tax revenue for jurisdictions at all income levels, although high-income countries are expected to gain more revenue compared with low- and middle-income countries, the organization said Tuesday in a report. Pillar One, the reallocation plan, is expected to benefit low- and middle-income countries more than high-income countries, the OECD reported in January 2023, but a high degree of uncertainty remains about whether it will ever be implemented because of political dynamics in the U.S. Congress.

The letter was signed by five special rapporteurs, three independent experts and the co-chair of a working group — all of whom were appointed by the U.N. Human Rights Council to report on various issues with administrative assistance from the Office of the High Commissioner for Human Rights. The signatories' mandates span education, food, mental health, racism, violence against women, international financial obligations and promoting democracy.

The OECD also was asked to explain how it will support work underway to create a U.N. global tax convention. The U.N. General Assembly voted in November to begin drafting terms of reference for a U.N. framework convention on global tax matters, with nearly two-thirds of countries voting in favor.

Most countries in the OECD voted against the creation of a U.N. global tax convention, except for Chile and Colombia, which voted in favor, and Costa Rica, Iceland, Mexico, Norway and Turkey, which abstained.

The OECD has declined requests to provide country-level estimates on how the two-pillar solution will impact revenue and has tried to undermine the U.N. by questioning its ability to host global tax negotiations, Luke Holland, network and partner relations manager at the Tax Justice Network, said in a statement Thursday.

"This challenge illustrates clearly the inappropriateness of the OECD for any global role in tax,'' Holland said. "With the anticipated progress in U.N. negotiations, however, the OECD may be able to revert to a more appropriate role in providing expert support to its members."

Tim Sarson, head of tax policy at KPMG UK, said Thursday on the social media platform X, formerly Twitter, that he was struggling to understand where the U.N. experts were coming from with their complaints.

"I know many Global South countries don't think [Pillar One] and [Pillar Two] work for them, but the human rights thing feels more like another shot in the new — largely one-sided — turf war between the two organizations," Sarson said, referring to the U.N. and OECD.

The global minimum tax will not undermine revenue collection in developing countries, Dan Neidle, founder of Tax Policy Associates, wrote Thursday on X.

"This letter is a disgrace," Neidle said. "Pillar Two doesn't reduce any country's taxing rights."

The minimum tax will reduce the competitive advantage of tax havens, which Neidle said is "a very peculiar human rights concern."

The Office of the High Commissioner for Human Rights did not immediately respond to a request for comment.


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