Global corporate tax minimum to be implemented this year

21st February 2024 By: Darren Parker - Creamer Media Contributing Editor Online

Global corporate tax minimum to be implemented this year

In an effort to boost tax revenue going forward, government will be implementing the long-awaited global corporate tax minimum in the coming year, Finance Minister Enoch Godongwana revealed upon the release of the 2024 Budget on February 21.

He said that the global minimum tax aimed to limit the “race to the bottom” of effective corporate tax rates for large multinationals, whereby countries competed to attract income by offering low tax rates and tax incentives.

He believes that implementing the minimum tax in South Africa will bolster the corporate tax base.

“The proposed reform is expected to yield an additional R8-billion in corporate tax revenue in 2026/27,” Godongwana said.

South Africa is not alone in its desire to implement a global corporate tax minimum. As a member of the Steering Group of the Organisation for Economic Cooperation and Development Group of 20 Inclusive Framework on Base Erosion and Profit Shifting, South Africa helped develop these tax rules to address base erosion and tax challenges arising from the digitalisation of the economy.

The rules that were developed were designed to limit the channels that multinationals can use to shift profits from high- to low-tax countries.

Last year, the Budget Review outlined the two pillars of this framework, which were endorsed by more than 135 countries in 2021.

The first of these focused on the digital economy and the coherent tax treatment of multinationals. Godongwana said that this would be implemented through a multilateral convention to ensure that the biggest and most profitable multinationals reallocated part of their profit to all countries wherein they sold their products and provided their services.

The second pillar is the introduction of the global minimum tax, which ensures that any multinational with yearly revenue exceeding €750-million will be subject to an effective tax rate of at least 15%, regardless of where its profits are located.

To effect this change, National Treasury has proposed the introduction of two measures to effect this change as from January 1. The first is an income inclusion rule and the second is a domestic minimum top-up tax for qualifying multinationals.

The income inclusion rule will enable South Africa to apply a top-up tax on profits reported by qualifying South African multinationals operating in other countries with effective tax rates below 15%.

Meanwhile, the domestic minimum top-up tax will enable the South African Revenue Service to collect a top-up tax for qualifying multinationals paying an effective tax rate of less than 15% in South Africa.

He said that the Explanatory Memorandum and Draft Global Minimum Tax Bill will contain more details on these proposals and he requested that the public provide input, Godongwana said.