A/HRC/26/28
Estimates in many African countries show that revenue losses from tax incentives were
between 2 and 8 per cent of GDP.87
65. The evidence that incentives succeed in attracting investment is actually weak.88 It is
likely that, in many cases, the investment would have come even without the incentive, and
that the costs of the incentive may indeed outweigh the benefit of the investment. 89
Moreover, the granting of incentives has global ramifications, as it creates a “race to the
bottom”. There are also significant implications for the right to information, transparency
and accountability, as tax incentives are often negotiated in secret between the Government
and the company concerned, fostering corruption and weak governance.
66. Incentives sometimes take the form of a “tax stability” “or “advance pricing”
agreement, signed with foreign investors to insulate them from future changes in the
domestic tax rates for an extended period of time. These types of agreement should also be
examined with caution under human rights law, because they reduce public resources
regardless of the evolving impact on human rights.90
67.
As in any case where a State is alleged to be failing to use its maximum
available resources to fulfil obligations to progressively realize economic, social and
cultural rights, incentives would have to be justified by a clear description of deliberate,
concrete and targeted advances towards the fulfilment of human rights that can be expected
from their implementation. 91 States parties to the International Covenant on Economic,
Social and Cultural Rights would also have the burden of proving periodically that the
granting of corporate tax breaks was the least restrictive policy option from the perspective
of economic, social and cultural rights.92
D.
Broadening the contributions of the financial sector
68. The huge growth of the financial sector in recent decades and the bailout in the wake of
the 2008-2009 crisis raise significant human rights concerns. It is clear that at least some of
the profitability growth was precisely due to the risk-taking and leveraging that ultimately
proved excessive, resulting in a huge rescue from public funds that could have been used
for poverty reduction and the realization of human rights. The sector’s excess returns were
thus made, at least partially, at the expense of the public, while its tax rates were kept low.
The owners, managers and/or creditors of financial institutions were able to enjoy the full
gains of good times, whereas ordinary taxpayers were expected to shoulder the costs to save
the sector as it was collapsing, while also having to endure austerity measures. 93
Insufficiently regulated financial sectors have also played a role in enabling the aggressive
87
88
89
90
91
92
93
Tax Justice Network Africa and Christian Aid, Africa Rising? (see footnote 49), p. 43.
See ibid. IMF, OECD et al, Supporting the Development (see footnote 84), pp. 19-20; McKinsey
Global Institute, New Horizons: Multinational Company Investment in Developing Economies,
October 2003, p. 2; and ActionAid, Give us a break (see footnote 86).
Louis T. Wells Jr., Nancy J. Allen, Jacques Morisset and Neda Pirnia, “Using Tax Incentives to
Compete for Foreign Investment: Are they Worth the Costs?”, Occasional Paper 15, Foreign
Investment Advisory Service, 2001.
The Guiding Principles on Business and Human Rights clearly require States to “maintain adequate
domestic policy space to meet their human rights obligations when pursuing business-related policy
objectives with business enterprises, for instance through investment treaties or contracts” (principle
9).
See E/C.12/2007/1, para.8 (a).
Ibid., paras. 8 (d) and (e).
See IMF, A Fair and Substantial Contribution by the Financial Sector, Final Report for the G-20,
June 2010, p. 9,
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