Issue link: https://maltatoday.uberflip.com/i/1482697
Lina Klesper Lina Klesper is a Legal Assistant at PKF Malta, an audit and consultancy firm 8 OPINION 27.10.2022 Global fiscal morality - a human rights and ESG issue T he way business is con- ducted is changing. While for the longest time the primary goal was to in- crease shareholder returns more attention is being paid as to how certain business practices affect the environment and society. What is argued for quite some time is that money-oriented approaches to business are out- dated since such an approach cannot be sustainable in the medium to long run. e key to success is to strike a balance between the interests of all stakeholders involved. In more familiar words, this means pay- ing attention to environmental, social, and governance (ESG) issues involving customers, employees, suppliers, commu- nities, and shareholders. e mantra of ESG advocates is that companies taking ESG criteria at heart will be in a bet- ter position to receive strategic opportunities and be at a com- petitive advantage. Armed with an ESG report, companies can improve trans- parency for investors with rel- evant stakeholders being able to review the company´s ESG activities and the company functions as an inspirational role model benefitting its own image. ESG reporting is there- fore a good (and soon manda- tory) step to publicly disclose a company´s ESG data. However, what is easily over- looked is the importance of tax as an ESG criterion. Every year, countries around the world lose a total of $483 bil- lion in tax to corporations and the superrich using tax havens. Illicit financial flows and the consequential lack of revenue for governments give rise to devastating human rights im- pacts and some of the worst human rights failures around the world. Especially in the global south, the effects of tax abuse are felt as a product and continuation of colonial hegemonies, fiscal extraction, and discrimination. Most dramatic findings show, when analysing the relationship between government revenue and child and maternal mortal- ity, that tax abuse is responsible for the loss of 600,000 children and 73,000 mothers globally if the losses in 2020 are projected over a ten-year period. A perfect example of tax pol- icy as a human rights issue is the case of tax haven Ireland which is to face the UN spot- light over children's rights im- pacts of its fiscal policies. In early 2023 Ireland must ap- pear before the United Nations Committee on the Rights of the Child due to the country´s responsibility for the impacts of cross-border tax abuse on the realisation of children´s economic, social and cultur- al rights caused by Ireland´s manifold ways of siphoning revenue away from richer countries leading to devas- tating human rights impacts. Keeping in mind that Ireland is not the only tax haven, this is an interesting moment to look out for. Look out as this month, the UN Committee in Geneva will consider evidence from civil society organisa- tions. e objective of having tax as an ESG criterion is to bring tax transparency to hold organiza- tions responsible for comply- ing with tax legislation and in particular good tax practices to meet the expectations of their stakeholders. Broadly speak- ing, tax justice is the overall objective when taking a human rights approach. e great importance of taxes becomes clear when uncovering that tax injustice is a human rights issue. is is a surprising con- nection for some people, while for others, it makes perfect sense. e foremost logical con- nection between companies, ESG and taxes, means that an organization has an impact on the economy through its tax- es and payments to govern- ments. e impacts on the economy, environment, and people and their human rights are interrelated, making room for connections between taxes and human rights and putting taxes on the spot as a metric of a company´s contribution to society. e fact that taxes are acknowledged by the United Nations to play a vital role in achieving the Sustainable De- velopment Goals as introduced by the Agenda 2030 shows stronger correlations between taxes and human rights. When companies deviate from good tax practices and seek to minimize their tax ob- ligation the government and consequently the society is being deprived of revenue and investment increasing govern- ment debt or even shifting the tax obligation to other tax- payers. A prominent example of undermining tax compli- ance through tax avoidance, includes mega multinational companies whose behaviour leads to aggressive tax plan- ning while other companies fearing to be at a competitive disadvantage. e latter fall back onto the government fearing with increasing cost in tax burdens, regulation and en- forcement. On the contrary, when com- panies are paying taxes, a great contribution is made to finance public services and public sus- tainability projects to help alle- viate poverty. By reporting the company´s tax footprint, which measures the taxes and their effects accumulated for society by company operations, trans- parent disclosure is provided in the interest of investors and the public. At the moment, companies are not obliged to report on their tax footprint. e Global Reporting Initi- ative (GRI), an international organization for independent standards, laid down standards for companies to report non-fi- nancial information to disclose the business´ impacts on the economy, environment, and people, including effects on human rights. ose standards are voluntary and non-binding. However, the proposed Cor- porate Sustainability Report- ing Directive (CSRD) and the forthcoming mandatory Euro- pean Sustainability Reporting Standards (ESRS) are based on the GRI standards. But many companies are already disclos- ing their tax-related impacts possibly in connection with in- creased pressure on corporate tax transparency. In some countries, ESG crite- ria have become vital for com- panies wanting to register with the country´s stock exchange thus elevating the importance of corporate transparency and reporting. Furthermore, insti- tutional investors can be held liable for their investment in financial vehicles which do not pay their fair share of tax, thereby exacerbating human rights abuses. Besides ESG, hope also lies in a draft UN tax convention as reforms on corporate tax in- cluding proposals for a global minimum corporate tax at the OECD are dragging and al- ready deemed hopeless. At the beginning of this year, Eurodad and the Global Alliance for Tax Justice produced a full draft for a UN tax convention ´Pro- posal for a UN Convention on Tax´. A UN Tax convention is intended to set up interna- tional tax standards and create a globally inclusive, intergov- ernmental tax body to end the scourge of global tax abuse and the relentless race to the bot- tom in corporate taxation. To conclude, tax justice is clearly a human rights issue. e fact that tax policy plays such a crucial part in ensuring human rights globally, cor- porate tax and tax policy are becoming an important ESG criterion to look out for – for investors, shareholders, law- yers, advisors, auditors and consumers. Especially law- yers and other advisors like ac- countants should redefine their role in advising corporations on tax matters and are strongly encouraged to alert companies to the reputational, social, and environmental harm tax avoid- ance or even more in case of evasion can cause.