combined".116
A specific area in which action could be taken to widen the tax base in order to fund the realization of
economic and social rights is by reducing, or eliminating entirely, favourable treatment granted to
foreign investors in order to attract capital. There is in fact ample evidence that such "tax holidays" or
even, more generally, legal protections granted to investors, have little or no impact on the ability of
the country to attract investment.117 The major determinants of foreign direct investment (FDI) are
economic factors such as the availability of skilled labor, market size and trade openness, as measured
by exports and imports in relation to total GDP.118 For other variables there is less consensus in the
literature. Generally however, the studies find that these political and economic factors are more
important for the locational decision of foreign investment than the legal structure for protection of
investors' rights and the ability to avoid double taxation by double-taxation treaties.119 In other terms,
if there is one means through which revenues from taxation could increase rather painlessly (and at a
relatively low administrative cost), it is by raising the taxes owed by foreign corporations operating in
the country, or by closing loopholes, such as price transfer mechanisms, allowing such corporations to
reduce their tax liabilities or even to entirely escape payment of local taxes.
b) Implementing progressive tax policies
The former Special Rapporteur on extreme poverty and human rights argued that States should be
encouraged to "set up a progressive tax system with real redistributive capacity that preserves, and
progressively increases, the income of poorer households. [A]ffirmative action measures aimed at
assisting the most disadvantaged individuals and groups that have suffered from historical or persistent
discrimination, such as well-designed subsidies or tax exemptions, would not be discriminatory. In
contrast, a flat tax whereby all people are required to pay an equal proportion of their income would
not be conducive in achieving substantive equality, as it limits the redistributive function of
taxation".120 Her successor in the mandate, Philip Alston, emphasized this point further, regretting that
we are still far from "recognizing the fact that tax policy is, in many respects, human rights policy",
despite the obvious contribution taxation makes to the fulfilment of human rights: "The regressive or
progressive nature of a State’s tax structure, and the groups and purposes for which it gives
exemptions or deductions, shapes the allocation of income and assets across the population, and
thereby affects levels of inequality and human rights enjoyment".121
It is time that these calls be heeded. Redistributive fiscal policies and social spending, particularly on
social security, have made a major contribution to the reduction of the inequalities that would result
from market incomes for different groups of the population. In OECD countries, public cash transfers,
116
Report of the Special Rapporteur on extreme poverty and human rights, Magdalena Sepulveda Carmona, presented at the
26th session of the Human Rights Council (A/HRC/26/28) (22 May 2014), para. 56 (citing ActionAid, Accounting for
Poverty: How international tax rules keep people poor, 2009, at 5).
117
For a more systematic treatment, see Olivier De Schutter, Johan F. Swinnen and Jan Wouters, 'Introduction: Foreign
Direct Investment and Human Development', in O. De Schutter et al. (eds), Foreign Direct Investment and Human
Development. The Law and Economics of International Investment Agreements (London and New York: Routledge, 2012):
1-24.
118
A greater emphasis has been placed in recent years on the latter determinant as a result of globalization and the
development of global supply chains. Even in this regard, however, the relationship is by no means automatic, as illustrated
by the situation of Sub-Saharan African countries that are very open to trade but that nevertheless experience considerable
difficulties attracting FDI.
119
The available econometric studies confirm the suspicion expressed by some in the legal literature (M. Sornarajah, 'State
responsibility and bilateral investment treaties', Journal of World Trade Law, vol. 20 (1986), pp. 79–98; Jason Webb Jackee,
'Do Bilateral Investment Treaties Promote Foreign Direct Investment? Some Hints from Alternative Evidence', Virginia
Journal of International Law, vol. 51 (2011), p. 397): there is weak evidence that the conclusion of investment agreements
guaranteeing extensive rights to investors has more than a marginal impact on FDI inflows, and where it does seem to have
some effect, it is mostly as a substitute for poor institutional quality, particularly in Sub-Saharan African countries or in
transition economies swiftly moving towards open market policies.
120
Report of the Special Rapporteur on extreme poverty and human rights, Magdalena Sepulveda Carmona, to the 26th
session of the Human Rights Council (A/HRC/26/28) (22 May 2014), para. 16.
121
Report of the Special Rapporteur on extreme poverty and human rights, Philip Alston, to the 29th session of the Human
Rights Council (A/HRC/29/31) (26 May 2015), para. 53.
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