Tax, human rights and development

Government revenue is the linchpin between government duties and people’s rights [9]. Taxation is the primary source of government revenue in most countries [10]. Taxation and human rights intersect in several ways. First, revenue mobilisation and utilisation significantly influence a government’s fiscal space to spend, including on essential public services required to fulfil rights, such as the right to health and education. Second, domestic and international tax policy affects the (re)distribution of resources between and within states and the profile and location of income and assets. Third, taxation can also incentivise specific behaviours and increase the costs of actions that harm society or the environment, which infringe on rights. Lastly, fiscal policy plays a vital role in mediating the relationship between those who govern and those who are governed, where well-designed systems improve state accountability and effectiveness for realising rights for all [9,11].

Today, human rights and development are widely accepted as two sides of the same coin [12], with taxation considered integral to both. For instance, Global South governments and civil society strongly advocated for a human rights-centred approach in the UN Agenda 2030 for Sustainable Development, which created the Sustainable Development Goals (SDGs). The SDGs serve as the globally agreed blueprint for national and international development and cooperation, incorporating taxation, which was notably absent in the predecessor Millennium Development Goals. The SDGs explicitly aim to “to realise human rights for all” [13]. There is significant overlap between international human rights and the targets and indicators established for the 17 SDGs [14], which include the rights outlined by the International Covenant on Economic, Social and Cultural Rights. For instance, the right to education maps from Article 13 of the Covenant onto SDG 4, which aims to ensure inclusive and equitable quality education. However, tensions between development and rights may exist, particularly when individual SDG targets can be achieved without national governments respecting human rights [15], and because no explicit human rights goals have been included [9].

In lower- and middle-income countries, revenue generated from corporate taxes is especially vital. Corporate income tax often constitutes nearly one-fifth of total tax revenues in Africa (18.72% across 32 countries) and Asia and the Pacific (18.2% across 31 countries), and 15% in Latin America and the Caribbean. In contrast, Organisation for Economic Co-operation and Development (OECD) countries have higher tax-to-GDP ratios but are much less dependent on corporate income taxes, constituting 10.2% of total tax revenues [16]. However, all governments encounter challenges in collecting corporate income tax; issues like tax expenditures—such as tax incentives to reduce corporate income tax rates or the tax base [17]—and tax abuse [18] lead to lower revenues. The latter, the focus of this paper, is driven by cross-border aggressive tax avoidance by multinational companies, which results in a global loss of about 10% of corporate income tax revenue, and this is much higher in specific jurisdictions [19]. In response to the scale of profit shifting, SDG 16.4 represents a ground-breaking effort, establishing the first globally agreed target to reduce illicit financial flows, including corporate tax evasion and avoidance. Illicit financial flows, as defined by the United Nations in the SDG indicator 16.4, are “financial flows that are illicit in origin, transfer or use, that reflect an exchange of value and that cross country borders” and include tax-motivated illicit financial flows (such as aggressive tax avoidance or profit shifting by multinational enterprise groups) [20].

The same year the SDGs were adopted, UN member states gathered in Addis Ababa at the Financing for Development Conference to discuss how the goals would be financed. Domestic resource mobilisation and international tax system reform took centre stage. The outcome document—the Addis Ababa Agenda for Action—emphasises that each country must effectively mobilise and use public resources, support an enabling international economic environment, and cooperate on international tax to reduce aggressive tax avoidance [21]. It calls for “scaling up international tax cooperation” to be able to tackle illicit financial flows effectively. That tax and aggressive tax avoidance—or tax abuse—affects individuals and society, as well as the ability of governments to finance public goods and services, is well known. Yet “the effort to analyse the implications of global tax ‘wrongs’ for human rights and scrutinise the content of tax rules through the lens of human rights law” is a relatively new development [9] upon which we build with this study.

Evidence of government revenue impacts on rights and governance.

Globally, many people still experience deprivations of economic and social rights essential for their survival, such as the right to basic sanitation and water (see Table 1). Research shows that low government revenue per capita is linked to inadequate coverage of these rights. In high-income countries, where government revenue per capita is high, coverage of rights approaches nearly 100%. Empirical evidence indicates that increased government revenue leads to higher spending independent of governance, especially in lower-income settings [24]. This increased spending enhances access to public services and improves health, education and mortality outcomes, ensuring more citizens have their economic and social rights fulfilled [25,26].

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Table 1. Average government revenue per capita and coverage of rights in 2022 [22,23].

https://doi.org/10.1371/journal.pgph.0004218.t001

Reeves and colleagues studied 89 lower-income countries using a cross-national panel model with fixed effects [24]. Their research demonstrates that an increase in tax revenue by $100 per capita is associated with a $10 rise in government health spending and skilled birth attendance, which contributes to reduced mortality rates. They also argue that the composition of government revenue is important. For instance, consumption taxes applied to goods and services, impose the same tax rate on all taxpayers regardless of income, which typically makes it harder for lower-income households to afford essential goods, hence these taxes are considered regressive. In contrast, progressive taxes on income, profits, and capital gains—which respond to the ability to pay and increase as the taxable amount increases—do not adversely affect child survival outcomes.

In addition to directly impacting human rights coverage, increases in government revenue also have an indirect effect by improving governance, with some empirical support [27,28]. The quality of governance determines a government’s effectiveness in ensuring budget allocation and expenditure translate into quality public services [29,30]. Additional government revenue, combined with its effects on improving governance, enhances the quality of public services, which is the most effective way to reduce inequality [31,32].

However, government revenue and governance are not the only factors determining the outcomes of rights coverage. Individual and household health and education outcomes are determined by various elements, including historical, geospatial and socio-economic factors and inequities [33–36]. At the population level, though, evidence shows that increased revenue leads to greater government spending on public services, positively affecting health determinants and educational outcomes [37]. With empirical evidence, this article contributes to progressing the position that “[t]axation is critical to the realisation of human rights in both developed and developing countries” [9] and generating tax revenue is one of the key pathways for governments to meet their human rights obligations [11]. Thus, when one state’s policies or practices impact government revenue in another state, they also impact human rights.

Extraterritorial obligations for the human rights impacts of cross-border tax policy

Two international treaties are the foundation of international human rights law: the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights (ICESCR) [3,4]. The UN General Assembly adopted these in 1966, building on the Universal Declaration of Human Rights. Together, the three are often called the International Bill of Human Rights. All European states have ratified these covenants, and they are reflected the European Union’s (EU) founding treaty, where EU nations agreed to uphold non-EU citizens’ rights, especially children’s rights, in the wider world, and international duties are grounded in the Universal Declaration of Human Rights, including Articles 22 and 28 [38].

Curtailing international aggressive corporate tax avoidance is only possible through reforming domestic and international tax policy, incorporating the state’s obligations to people in other countries and not just to their own people, which has been the conventional approach within international human rights law jurisprudence. Türkelli categorises extraterritorial responsibilities as follows: 1) responsibility for a state’s own acts or omissions resulting in human rights violations, 2) violations from acts or omissions by international organisations to which states are members, and 3) acts or omissions by non-state actors that are headquartered in a state which leads to violations, like a company, as the state is obliged to regulate these [39]. There is growing recognition, particularly among UN treaty bodies and experts, national human rights institutions, and governments in the Global South, that states have extraterritorial obligations for the human rights impacts of tax policy across all three categories of extraterritorial responsibilities. Table 2 presents a timeline of key comments by UN rights bodies, including experts and committees, on the implications of cross-border aggressive corporate tax avoidance for human rights and extraterritorial obligations of states (category 1).

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Table 2. Timeline of select UN human rights experts and committees’ comments on extraterritorial obligations of tax policy on human rights (adapted and updated from [40,41]).

https://doi.org/10.1371/journal.pgph.0004218.t002

The Maastricht Principles, drafted at a conference of scientists and former and current UN experts at the University of Maastricht in 2011, have also been particularly defining, influencing subsequent UN human rights committees and experts in elaborating on the extraterritorial obligations of states. These principles sought to clarify the extraterritorial duties of states, drawing from international law [60]. They also affirm that states are responsible for non-state actors, including corporations, and must influence and regulate businesses to protect economic, social, and cultural rights and cooperate to ensure effective grievance mechanisms and remedies where human rights have been violated [61]. Further, the principles outline that extraterritorial obligations may arise when a state’s action or omissions lead to human rights violations abroad.

Over the years, the Committee on Economic, Social and Cultural Rights has elaborated on extraterritorial responsibilities. It “has indicated that the ICESCR may have an effect beyond the borders of States Parties, meaning that states may be bound by their obligations under the treaty when acting extraterritorially” [62] especially because since the covenant was drafted changes in economic and financial transactions has affected economic, cultural and social rights. Under the ICESCR (Article 2(1)), states are expected to take collective action to ensure that economic, social and cultural rights are fulfilled outside of their national territories. For example, countries party to the ICESCR may have extraterritorial obligations for headquartered multinational corporations operating in other countries. In 2017, according to the Committee’s interpretive statement of the Covenant (General Comment No. 24) on state obligations, countries “should also encourage business actors whose conduct they are in a position to influence to ensure that they do not undermine the efforts of the States in which they operate to fully realise the Covenant rights—for instance by resorting to tax evasion or tax avoidance strategies in the countries concerned” [44]. Other state practices, including lowering tax rates to encourage investment inducing a race to the bottom in tax rates, banking secrecy, were described as inconsistent with the duties of states under the covenant as they undermine the rights of all states to mobilise maximum resources for development. In January 2025, the Committee closed its a public call on a draft General Comment on Economic, Social and Cultural Rights and the Environmental Dimension of Sustainable Development, reiterating extraterritorial obligations of states “to prevent tax abuse, financial secrecy, and permissive corporate taxation inconsistent with the obligation to mobilise the maximum of available resources for the fulfilment of ESCRs [economic, social and cultural rights]” [59].

In 2014, the UN Special Rapporteur on extreme poverty and human rights dedicated their annual thematic report to the role of taxation [42]. This was a critical juncture in highlighting the crucial connection between extraterritorial obligations on taxation and financial transparency, and the enjoyment of human rights, drawing on international human rights law: “With regard to international cooperation and extraterritorial impact, each State should refrain from any conduct that impairs the ability of another State to raise revenue as required by their human rights commitments, and cooperate in creating an international environment that enables all States to fulfil their human rights obligations” (para 80). Since then, former and current mandate holders of the office of the Independent Expert on the effects of foreign debt and other related international financial obligations on the full realisation of human rights particularly economic, social, and cultural rights have emphasised the importance of the state’s extraterritorial human obligations to address tax abuse and illicit financial flows. Consequently, as Table 2 shows, three UN committees have underscored the negative impact of cross-border tax abuse on the realisation of human rights and the extraterritorial obligations of the state. They have consistently called upon European tax havens to reform domestic law to ensure the rights of citizens’ elsewhere may be realised and are not undermined by tax abuse [40]. For example, the UN Committee on the Elimination of Discrimination against Women has requested Cyprus in 2018 [45], Luxembourg in 2018 [47], New Zealand in 2018 [63], Panama in 2022 [46], Switzerland in 2016 and 2022 [64,43], and the UK and Northern Ireland in 2019 [49] to undertake impact assessments of their financial secrecy and corporate tax policies on women’s rights and equality. Similarly, the UN Committee on the Rights of the Child, in its review of Ireland in 2020 and 2023 [50,55] and the Netherlands in 2022 [53], recommended that the countries ensure that their tax policies “do not contribute to tax abuse by national companies operating outside the State party that lead to a negative impact on the availability of resources for the realisation of children’s rights in the countries in which they are operating” [53].

Most recently, in 2024, the UN Committee on Economic, Cultural and Social Rights made the most extensive recommendations in its concluding observations to Ireland on its fourth periodic review, where it noted its concerns “about reports that financial secrecy legislation and permissive corporate tax rules continue to hinder the ability of the State party, as well as other States, to meet their obligation to mobilize the maximum available resources for the implementation of the rights enshrined in the Covenant” [56]. The Irish Human Rights and Equality Commission also echoed the Committee's call for Ireland to assess the cross-border impact of domestic policy and revise it according to findings. This is significant as it is the first time a national human rights institution in a European tax haven has made recommendations to its government to identify “tax structures which are impacting rights protections in other territories”, and undertake “ongoing independent and regular assessments of the impact of its policies on cross-border tax abuse” [65]. These and other international and regional human rights bodies justify extraterritorial human rights obligations of states at the doctrinal level both on legal and moral grounds. This is not yet accepted as an international human rights norm [66–68], and as such states may justify non-compliance, including with recommendations made by international human rights bodies [62]. Indeed, “the idea of invoking socioeconomic human rights obligations against states other than the territorial states [… isn’t] universally accepted within the academy […] Moreover, governments in most advanced economies have been unwilling to recognise legally binding socio economic ETOs [extraterritorial obligations], given their potential to require the redistribution of states’ resources” [69]. Nevertheless, as the evolution in Table 2 reflects, there is growing recognition that when a country acts through law, policy or practice in ways that foreseeably affect human rights in other jurisdictions, it must respect and protect those rights.

The international economic environment

States are generally seen as responsible for upholding and protecting rights. According to the UN General Assembly, each country has primary responsibility for its own economic and social development [21]; thus, governments are obliged to respect, protect, and fulfil human rights at all times in their fiscal policies. Economic reforms that lead to retrogression should be avoided, even in extreme economic conditions [70]. While states are the duty bearers for their citizens’ rights, a state’s policy decisions, revenue, governance, and capacity to provide public services can be influenced by the actions and policies of other countries, global institutions and multinational companies. Consequently, the UN General Assembly in adopting the Addis Ababa Agenda for Action emphasised that national development efforts must operate within an enabling international economic environment, which includes supportive global trade, monetary and financial systems, as well as improved global economic governance [71].

There are multiple shapers of the international economic environment. The policies and positioning of high-income countries and the Bretton Woods Institutions are particularly influential. At the same time, multinational companies can influence global rules by supporting policies such as trade liberalisation, impeding regulations like those concerning the environment and labour, and contributing to regulations like through standards in global supply chains [72]. This influence is evident in the strong rules and regulations surrounding trade and intellectual property and in the less robust rules around tax collection, workers’ rights, and environmental protection [73]. These influences are compounded by shortcomings in cooperation at the international level in taxation—the focus of this paper—and in mechanisms for resolving sovereign debt crises efficiently and fairly [74].

The main challenges stemming from gaps in global governance on tax cooperation include [74]: 1) taxing companies and individuals operating and with assets in multiple tax jurisdictions, 2) the race to the bottom in income tax rates associated with the mobility of capital, 3) profit shifting by multinational companies which undermines tax collection, and 4) the existence of tax havens, which facilitate illicit financial flows.

The most recent estimates suggest multinational companies shift US$1.42 trillion in profits into tax havens each year, which causes governments around the world to lose US$348 billion a year in direct tax revenue [75]. This global aggressive corporate tax avoidance is facilitated by the vulnerabilities states create through domestic tax policy and their influence on international tax rules. Large-scale cross-border profit shifting by multinational companies enabled by OECD members, their dependencies, and other tax havens severely undermines the ability of other governments to raise revenue for providing quality services to fulfil core social and economic rights for its people, as is the case in Nigeria. Over two-thirds of all global tax losses can be attributed to OECD members and their dependencies [75]. As the results show, profit shifting weakens governance and causes significant deprivations in human rights and the loss of life.

To address these challenges in the context of international tax cooperation, international tax rules have been set by the OECD and its 38 members, the world’s highest-income countries. While some non-OECD members have entered discussions under the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting initiative—particularly on how taxing the digital economy and combating tax avoidance by multinational companies—the OECD’s mandate is to protect the interests of its member states. Among the 38 OECD member countries, 27 are European nations, and of these, 22 are members of the EU.

The most recent tax reforms championed by the OECD, known as the “two-pillar solution”, have not been accompanied by the OECD publishing detailed country-level revenue estimates or human rights impact assessments. Independent assessments indicate that revenue gains in the Global South may be significantly lower than in the Global North; some countries might even lose revenue [76,77]. For example, an assessment by the EU Tax Observatory on the revenue implications of Pillar One Amount A of the OECD’s reforms, which seeks to reallocate the profits of large multinationals to market countries, finds that “developed countries would collect more than 77% of the net revenues […] [and] in absolute terms, the least developed countries do not benefit much from Amount A, as their net revenues are almost null” [78]. The UN Secretary-General has described these rules as having “limited effectiveness” [79].

Due to these concerns, as part of Special Procedures of the UN Human Rights Council, a group of UN Independent Experts with human rights mandates has called on the OECD to assess the human rights impacts of the two-pillar solution, including gender and racial implications. They have raised concerns about the lack of an “effective voice” and voting rights for non-OECD/G20 countries in designing these solutions, as well as their limited scope, which only covers a portion of the global profits of around 100 of the largest multinational companies under Pillar One [80]. The experts highlighted potential harmful effects on the taxing rights of countries in the Global South, such as restrictions on unilateral taxes on digital services, and reduced revenue collection “and consequently on the availability of resources for the progressive realisation of economic, social, and cultural rights”, which could have gender, ethnic, and racial discriminatory impacts [81].

No African countries are members of the OECD, which is hosted in Paris, and fewer than half have chosen or been able to join the Inclusive Framework. For those that do participate, the UN Secretary-General reports significant barriers that prevent “their meaningful engagement in agenda-setting and decision-making” [79]. As a result, “it often happens that the substantive rules developed through these OECD initiatives do not adequately address the needs and priorities of developing countries and/or are beyond their capacities to implement” [79].

This concern has been a primary driver for all African nations, as part of the Africa Group at the UN, to propose a resolution in late 2023 aimed at promoting inclusive and effective international tax cooperation at the UN, which has the legitimacy to be a truly inclusive and effective forum [79]. The ambitions of the resolution include establishing a UN framework convention on tax, recognising taxation’s crucial role in closing the financing gap for sustainable development. The resolution states, “so that Governments may better cooperate in generating financing for development, [...] Noting the corrosive effect that aggressive tax avoidance and tax evasion have on trust, the social compact, financial integrity, the rule of law and sustainable development, affecting the poorest and most vulnerable” [82]. This is critically important, especially for countries that urgently need revenue for development and to adapt to climate emergencies.

International tax reforms

On 22 November 2023, UN member countries voted on the resolution (A/C.2/78/L.18/Rev.1). A total of 125 countries voted in favour of inclusive tax cooperation at the UN, 48 countries voted against it, and 9 countries abstained, making a total of 182 votes [83,84]. Notably, all EU member states voted against the resolution, Norway abstained, while Belarus and Russia voted in favour. In the aforementioned letter to the OECD, the UN Independent Experts stated, “The negotiations related to the newly adopted resolution on the UN Convention on International Tax Cooperation, and the positions that some OECD member states under the aegis of the UN could undermine the development of more effective multilateral standards for strengthening international tax cooperation” [80]. In contrast, all the African countries that voted supported the resolution.

Most European countries support the OECD two-pillar solution and hinder international tax reform efforts at the UN. In August 2024, during the vote on the terms of reference for the UN Framework Convention on International Tax Cooperation, all EU member states abstained, and eight OECD nations voted against the terms of reference, including the USA and UK [85]. Yet the EU—of which most European nations are members—is founded on the principles of human rights within and outside its borders. The treaty that established the EU alongside its Charter of Fundamental Rights also guides its external action:

In its relations with the wider world, the Union shall uphold and promote its values and interests and contribute to the protection of its citizens. It shall contribute to peace, security, the sustainable development of the Earth, solidarity and mutual respect among peoples, free and fair trade, eradication of poverty and the protection of human rights, particularly the rights of the child, as well as to the strict observance and the development of international law, including respect for the principles of the United Nations Charter. [86]

European citizens support their governments in ensuring that they do not undermine the fulfilment of rights globally and that European companies operating abroad do not harm human rights. A 2021 YouGov poll showed over 80% support among nine EU member states for the EU to introduce laws to hold companies operating outside the EU accountable for any human rights violations and environmental harms [87].

Nigeria

Nigeria is one of the African countries with the highest illicit financial flows, according to a landmark 2015 report written by the High Level Panel on Illicit Financial Flows from Africa, which was a panel tasked by the African Union Commission and the UN Economic Commission for Africa to address illicit financial flows and make recommendations on how to curb them [88]. The Nigerian government, as part of its Integrated National Financing Framework, which is the national level sustainable financing plan to achieve the SDGs, identifies the primary contributors to illicit financial flows as “aggressive corporate tax avoidance, abusive transfer pricing, and trade mis-invoicing” [89]. Although Nigeria has a low tax-to-GDP ratio (6.7% compared to the African average of 15.6% in 2021), corporate income tax accounts for the largest share of tax revenues (35%) [90].

Unlike European countries, Nigeria has been a resolution sponsor and consistently voted in favour of efforts for international tax cooperation at the UN. While all EU member states supported the OECD’s two-pillar solutions, as a member of the OECD/G20 Inclusive Framework, Nigeria did not endorse the two-pillar solution, citing concerns over reduced revenue given that most multinational companies operating in Nigeria do not meet the group-level turnover threshold, as well as flagging the risk of agreeing to international arbitration which may yield limited returns but come with high costs [91]. The country’s Integrated National Financing Framework stated, “The proposals and frameworks designed by the OECD and the G7 to address issues related to IFFs [illicit financial flows], base erosion and profit shifting are complex and, in some cases, unclear if they are beneficial to developing countries like Nigeria. This is one of the reasons why Nigeria recently rejected the G20 and G7 proposal on a global minimum tax rate even though 130 countries agreed to it”. Nigeria is now considering the implementation of pillar two on a global minimum tax of 15% or introducing a Qualified Domestic Minimum Top-up Tax while reviewing tax incentives to ensure Nigeria does not cede its tax base to other countries and to protect national interests, according to the Federal Inland Revenue Service [92].

Given the importance of corporate tax revenue and the scale of profit shifting (26% of corporate tax revenue with almost one-quarter to European tax havens [93]), Nigeria makes an interesting case study to examine the impacts of profit shifting on rights.

Step 1. Tax revenue lost and gained from profit shifting

In the first step, we present estimates of the revenue lost from Nigeria and the revenue gained by European tax havens, generated from taxes on profits shifted.

Two widely accepted methods exist for quantifying the scale of profits shifted to tax havens: the approaches by Garcia-Bernardo and Janský [95] and by Tørsløv, Wier and Zucman [96].

The Garcia-Bernardo and Janský approach, used in the annual State of Tax Justice report published by the Tax Justice Network, is termed the “misalignment” approach [95,97]. This method analyses aggregate anonymised country-by-country reporting data published by the OECD and the US. It compares differences between the reported profits of multinational companies and theoretical profits, attributing differences to profit misalignment. Theoretical profits are those expected based on economic activity, which can be measured using proxies, such as a combination of tangible assets, number of employees, and/or wages.

In contrast, Tørsløv, Wier and Zucman’s method, used in the EU Tax Observatory’s Global Tax Evasion Report 2024 [19,96], estimates profit shifting and then allocates these shifted profits back to source countries. In their latest estimates published by Wier and Zucman in 2022, they define profit shifting “as a tax-motivated and artificial transfer of paper profits within a multinational firm from high-tax countries to low-tax locales” [98]. They measure “profit shifting to tax havens as the amount of multinational profits booked by companies in these havens above and beyond what can be explained by real economic activity”, which includes capital, labour, research and development spending [98]. Tørsløv, Wier and Zucman assess the profits-to-wage ratio of foreign and local firms in tax havens, non-tax haven OECD countries, and large developing countries. Generally, they find that foreign firms in tax havens have much higher profits-to-wage ratio than local firms, while in non-tax havens, foreign firms tend to be slightly less profitable than local firms. The authors state that the excess profitability of foreign subsidiaries in tax havens is explained by above-normal intra-group transfers from high- to low-tax jurisdictions. To estimate the profits shifted to each tax haven, they assume that, without profit shifting, the profits-to-wage ratio of foreign firms would be the same as for local firms. Second, they use bilateral balance of payments data to trace the origins of these payments and allocate the excess haven profits to the countries from which the profits were shifted, thereby estimating the resulting tax losses of the source countries.

A key distinction between the two methodologies relevant for this paper is that Tørsløv et al. present estimates for the profits shifted from source countries to destination tax havens, including the resultant losses and gains (e.g. Nigeria’s losses due to profits shifted to the Netherlands and the Netherlands’ gains from profits shifted out of Nigeria). Conversely, Garcia-Bernardo and Janský’s estimates quantify the scale of profits shifted inward and outward but do not present data on the bilateral relationships between jurisdictions. For our study, which aims to understand the cross-border impacts and responsibilities for profit shifting and revenue losses, we use Tørsløv et al.’s data, as it includes bilateral information.

Wier and Zucman’s most recent estimates, based on their methodology developed with Tørsløv, detail the corporate tax revenue that jurisdictions gained and lost due to profit shifting. This dataset is available on the Missing Profits website and for download [93,98,99]. The data allows observation of one country’s gains from the tax on profits shifted from another country, and the losses sustained from foregone tax revenue as a result of profits being shifted out. Their estimates (as seen in Table C4 of the downloadable dataset “1975-2019 updated estimates: Tables” [93]) list profits shifted from origin countries to tax havens in 2019.

Nigeria is one of the two African countries—South Africa being the other—for which detailed data is available in the dataset, and we chose Nigeria as an interesting case study as explained above. According to Wier and Zucman, in 2019, Nigeria lost 26% (South Africa loses 13%) of its corporate tax revenue to tax havens. Data is available concerning losses attributed to EU havens (specifically, Belgium, Cyprus, Ireland, Luxembourg, Malta, and the Netherlands) and non-EU tax havens (Switzerland and others, which are aggregated) [93]. We analyse the potential of additional government revenue for Nigeria equivalent to the revenue lost to all tax havens and to European tax havens, if profits were taxed at Nigeria’s statutory corporate income tax rate of 30%. We rounded this figure to the nearest million. Profits shifted to two jurisdictions—Cyprus and Malta—resulted in less than US$0.5 million in corporate income tax revenue loss in Nigeria and have been excluded.

The authors categorise countries as tax havens if foreign firms have excessive profitability (in comparison to local firms) and the effective corporate tax rate is below 15%. The limitations of this approach to categorising tax havens is discussed below. Additionally, the dataset includes estimates of the tax rate on shifted profits into European tax havens in 2018; we use the rates provided on the Missing Profits website [99], which are slightly lower for Ireland and Luxembourg than those available for download [93]. We use this information to calculate the tax revenues gained by European tax havens from profits shifted inward from all jurisdictions, and specifically from Nigeria.

Step 2. Human rights and governance impacts of profit shifting

In the second step, we use the Government Revenue and Development Estimations (GRADE) model (version V3.12.2: 2024/10/17) to translate revenue gains and losses into indicators of access to several rights, including impacts on governance. The model employs four decades of data to analyse the effects of changes in government revenue in any given country. Since an increase in revenue takes time to show impact, GRADE assumes that it takes five years for revenue increases to affect rights coverage, which then gradually plateaus over the longer term.

The research underpinning GRADE employed unbalanced panel data modelling for 191 countries from 1980 to 2022, expressing access to rights as percentages ranging from 0 to 100. The data is considered unbalanced because many countries lack complete data across the four decades. GRADE uses the 2023 Government Revenue Database [100]. It also uses the Worldwide Governance Indicators, which are six quality of governance indicators: Control of Corruption, Government Effectiveness, Voice and Accountability, Political Stability, Rule of Law, and Regulatory Quality, ranging from -2.5 to +2.5 [101]. For the rights variables, the World Bank World Development Indicators database is used to model government revenue and the coverage of water and sanitation (the percentage of the population with access to basic and safely managed water and sanitation) [102]. It also models government revenue and school attendance using out-of-school data from the UNESCO VIEW dataset [103], and school-age population statistics from the UNESCO Institute for Statistics (UIS) [104]. All databases are updated annually except the World Development Indicators, which are updated twice each year. The GRADE dataset is updated annually, in October, using the most recent data available.

As explained in previous work [17], a similar non-linear structure of the following form is used for the basic model of each sector.

Here, Y_i is the specific rights variable being modelled, GR is government revenue, ω is a vector of the quality of governance indicators for each country over time, and are the parameters to be estimated. This non-linear logistic function was chosen to mimic the real-world development of many of these rights indicators. A linear relationship between revenue and these variables would be inappropriate, as a standard panel logistic function would impose the same ‘S’ shaped curve on all countries (see Fig 1). The logistic function parameters have been augmented with the Worldwide Governance Indicator dataset, which allows each country to have a different ‘S’ shape as its governance quality varies [105].

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Fig 1. Relationship between government revenue per capita and coverage of rights.

https://doi.org/10.1371/journal.pgph.0004218.g001

This S-shaped curve (see Fig 1) illustrates the typical relationship between government revenue per capita and rights coverage. At the lower end of the curve, when government revenue per capita is minimal, increases in revenue will have little impact on the coverage of rights (the dependent variable). This is followed by a rapid increase in coverage of rights as revenue per capita increases. Finally, the S-shaped curve tapers off or plateaus when almost 100% of the population has access to these rights in a country, meaning that additional revenue yields minimal improvements. Governance indicators also respond to increased government revenue. The GRADE model uses two contrasting econometric methodologies to quantify the effects of increasing government revenue per capita on indicators of governance quality, showing that increased government revenue significantly influences governance indicators. There is an important feedback loop between government revenue and governance; over time, as governance improves, government revenue increases further, which further improves governance, creating a virtuous cycle [28]. Thus, using a similar set of equations for the quality of governance indicators, the model can realistically estimate the impact of a change in government revenue on the six Worldwide Governance Indicators and rights.

The quality of governance is critical and changes the shape of the S-shaped curve, making it unique to each country (see Fig 1). Therefore, additional revenue and small improvements in governance can greatly impact lower-income countries. In contrast, the coverage of rights approaches 100% in European countries, so additional revenue has little effect.

Importantly, we do not assume that a government will allocate new revenue differently than it has in the past. Many prior studies on government expenditure unrealistically assume that governments will spend all additional revenue on a specific activity, such as a school feeding programme or nurses’ salaries. In reality, governments have competing priorities and typically do not dedicate additional revenue to a single activity or budget line. Therefore, the GRADE model operates under the assumption that any increase in government revenue will be allocated in a manner consistent with past practices. This means that additional revenue and improved governance impact all social and economic outcomes, not just those highlighted in this study.

Using the GRADE model, we expressed revenue losses and gains from step one as percentages of total government revenue. We projected the impact of these on rights over the years 2002 to 2022, acknowledging the time it takes for the impact on rights to materialise. The results are presented as the absolute number of additional people who access their rights in one year, typically the final year of 2022, depending on data availability. We analysed the six Worldwide Governance Indicators and present here the improvement in two of these indicators: Control of Corruption and Government Effectiveness. These indicators do the most work in the models and are most greatly affected by increases in government revenue.

Results

In 2019, Nigeria lost US$1,291 million in tax revenue (equivalent to US$1,203 million in 2015 USD), which accounts for 3.02% of government’s total revenue, due to all tax havens included in Wier and Zucman’s dataset [93]. Nearly one-quarter of these lost revenues went to EU tax havens, with the largest tax loss to the Netherlands at US$207 million. The remaining US$970 million went to non-EU tax havens including Switzerland, Bermuda, the Caribbean, Puerto Rico, Hong Kong, Singapore, and others.

Our modelling indicates that if the Nigerian government had additional revenue equivalent to these losses, an additional 500,000 Nigerians would have their right to drink clean water and nearly 800,000 their right to use basic sanitation each day, 150,000 Nigerian children could exercise their right to education and 11 children could have their right to survive each day (totalling 4,063 children each year).

The rights deprivations attributed to the tax havens’ policies in proportion to their contributions to the losses from Nigeria are detailed in Table 3. Additionally, our modelling suggests that if the government had this additional revenue equivalent to losses, there would be improvements in governance indicators. Table 4 presents two of these indicators: Control of Corruption and Government Effectiveness.

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Table 3. Human rights deprivations in Nigeria and the role of tax havens.

https://doi.org/10.1371/journal.pgph.0004218.t003

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Table 4. Changes in governance indicators in Nigeria with additional revenue equivalent to that lost to tax havens.

https://doi.org/10.1371/journal.pgph.0004218.t004

European countries tax shifted profits at relatively low rates; the Netherlands taxes shifted profits at 6%, Ireland at 6%, Luxembourg at 4%, and Cyprus at 7%, while Belgium has the highest rate of taxing shifted profits, set at 20% [99]. The tax revenue generated from profits shifted out of Nigeria generally accounts for just 0.01% of these European government’s revenue.

Since the coverage of many rights approaches 100% in European countries, the effect of shifted profits from Nigeria is minimal (see Table 5). Attracting profits that should have been booked in Nigeria only enables around 400 people to access safe sanitation and guarantees 4 children the right to attend school in European tax havens.

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Table 5. Gains in human rights in European tax havens from shifted profits from Nigeria.

https://doi.org/10.1371/journal.pgph.0004218.t005

When considering all inward-shifted profits, the financial impacts in these tax havens become more significant (see Table 6). For example, tax revenue from all shifted profits contributes 7.3% to government revenue in Ireland. However, since many rights are already widely covered in these countries, the additional revenue has little impact overall. Notably, though, our modelling indicates that it does enable 126,000 additional people to gain access to safe sanitation in Belgium, Cyprus, Ireland, Luxembourg, and the Netherlands.

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Table 6. Gains in human rights in European tax havens from all shifted profits.

https://doi.org/10.1371/journal.pgph.0004218.t006

Intergovernmental cooperation and state duties

As explained in the background, European efforts as part of the OECD/G20 reforms on base erosion and profit shifting, which commenced in 2015, fall short (the second category in the categorisation of extraterritorial responsibilities described earlier [39]). Despite these reforms and reforms in the US, The Global Tax Evasion Report 2024, published by the EU Tax Observatory, states that “there was little discernible decline in profit shifting globally, or profit shifting by US multinationals relative to 2015”, although profits shifted to tax havens match rather than outpace global foreign profits as was observed in the early 2010s. Even though the share of government revenue for European tax havens on all profits shifted inward ranges from 1.64% to 7.41% (Table 5), indicating that low tax rates can generate not insignificant tax revenues, the limited impact on rights of people living in these tax havens, but adverse effects on the international order to fulfil rights globally, necessitates much better tax rules, cooperation, and coordination.

European countries and the OECD are hindering efforts towards a UN Framework Convention on International Tax Cooperation, observed in efforts to weaken resolutions in 2022, 2023 and 2024 for negotiations on international tax cooperation and a framework convention, first proposed by Nigeria on behalf of the Africa Group at the UN. Absent a framework convention, unilateral state and EU-wide regulations are vital to creating an international order where rights can be achieved. These should be aligned with the ‘ABCs’ (automatic exchange of information, beneficial ownership transparency, and public country-by-country reporting) of tax transparency to aid governments in assessing and addressing tax abuse risks [110].

In line with the ABCs, Nigeria has introduced domestic regulations to implement the Common Reporting Standard of the Multilateral Competent Authority Agreement, the OECD’s limited standard for the automatic exchange of information between participating countries to share financial information to examine if individuals or corporations have earned income in other countries that has been hidden to underpay taxes; however, information asymmetries and rules may hinder Nigeria’s access and use of relevant data. Beneficial ownership regulations for companies are in place, and despite loopholes, information is made public [111]. Nigeria has also signed the Multilateral Competent Authority Agreement to exchange country-by-country reports automatically and operationalised this domestically. Despite these efforts, as well as other regulations, initiatives, and new institutional arrangements, “IFFs [illicit financial flows] continue to thrive in the country” [89]. Recognising its own domestic governance challenges, the government also emphasises that existing efforts through the OECD, G7 and G20 to address base erosion and profit shifting are complex and may not necessarily benefit developing countries [89].

A UN Framework Convention on International Tax Cooperation needs to address the way multinational companies are taxed. At present, multinational companies are typically taxed using the arm’s length principle, which artificially treats subsidiaries of multinational companies as separate entities for tax purposes. This facilitates extensive tax planning, so multinational companies may set up affiliates in tax havens to reduce taxes in countries with economic activity. In contrast, unitary tax through formulary apportionment considers the global profits of a multinational company since the company operates as a single unit in practice. Then for tax purposes, the global profits are apportioned between countries based on a combination of assets, employees, and/or sales [112,113]. This is where the multinational company has real business activities, as opposed, for example, to its subsidiary in a tax haven, set up with the primary purpose of shifting profits to jurisdictions with low or zero tax rates. Such international reforms would increase revenue towards the magnitude of estimated losses attributed to profit shifting; in Nigeria, the government’s revenue would increase by 3.02%, and hundreds of thousands would access rights, as shown here.

In the short- and medium-term, to reduce profit shifting in the absence of a UN tax convention, the EU Tax Observatory suggests three critical areas to address global tax avoidance: 1) reopening negotiations on the global minimum corporate tax rate within the OECD’s pillar 2 to remove carveouts and increase the rate from 15% to 25% to reduce tax competition and disincentivise profit shifting, 2) introduction of unilateral higher taxation of multinationals through a remedial tax based on the tax deficit of multinational companies where they pay less in other countries than the minimum set tax suggested as 25%, and 3) strengthening the application of anti-abuse rules to better prevent transactions that are intended to solely or primarily avoid taxes, which are illegal [19].

Finally, governments need access to cross-border tax-related information to be able to administer and enforce tax laws to raise the maximum available resources to fulfil human rights obligations. Most lower-income countries do not have access to the information they need because of legal and administrative barriers designed by the OECD/G20 Global Forum on Transparency and Exchange of Information for Tax Purposes. For instance, only 8 of 54 African countries are currently participating in the exchange of information of country-by-country reports on locally active multinational companies [114]. A differentiated transparency framework may be needed to ensure all countries access information required to assess, query and audit multinational company accounts [69].