South Africa will implement a global minimum corporate tax, whereby multinational corporations will be subject to an effective tax rate of at least 15%, regardless of where their profits are located.
National Treasury expects the new minimum tax will increase corporate tax collection by R8 billion in 2026/27.
It said the introduction of global minimum tax rules is in line with the base erosion and profit-shifting framework of the Organisation for Economic Co-operation and Development (OECD).
“The implementation of the global minimum tax aims to limit the race to the bottom of effective corporate tax rates for large multinationals, with countries competing to attract income by offering low tax rates and tax incentives,” the Budget Review says.
South Africa helped to develop tax rules to address base erosion and tax challenges arising from the digitalisation of the economy as a member of the Steering Group of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting. These rules are designed to limit the channels that multinationals use to shift profits from high- to low-tax countries.
The 2023 Budget Review outlined the two pillars of this framework, which were endorsed by more than 135 countries in 2021.
The first focuses on the digital economy and the coherent tax treatment of multinationals. It will be implemented through a multilateral convention to ensure that the biggest and most profitable multinationals reallocate part of their profit to all countries where they sell their products and provide their services.
The second pillar introduces the global minimum tax. It ensures that any multinational with annual revenue exceeding €750 million will be subject to an effective tax rate of at least 15%, regardless of where its profits are located.
The government proposes to introduce two measures to effect this change for qualifying multinationals from 1 January 2024:
- an income inclusion rule; and
- a domestic minimum top-up tax.
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%.
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.
The Draft Global Minimum Tax Bill will contain more details on these proposals, as well as a request for public input.
