Jordan Mulindi | Tax Attorney | Latita Africa | mail me |
President Cyril Ramaphosa recently signed the Global Minimum Tax Act and the Global Minimum Tax Administration Act into law.
The new laws implement the OECD Global Anti-Base Erosion (GloBE) rules. These rules aim to prevent tax losses caused by Multinational Enterprises (MNEs) operating in foreign low-tax jurisdictions. Both laws enforce a minimum 15% global tax on MNEs based or operating in South Africa. This applies to companies with consolidated worldwide revenues exceeding R14.4 billion in at least two of the last four years.
What it means for South Africa
Approximately 40 companies in South Africa appear to qualify for this tax. These companies contribute significantly to the country’s GDP and tax revenue.
MNEs must pay the difference between their effective company tax in low-tax regions and the 15% target. This difference results in a Top-up Tax payable to South African Revenue Service (SARS). However, the OECD GloBE rules are complex and contain sophisticated conditions.
To apply them correctly, MNEs must carefully review their corporate and tax structures. They must also adapt accordingly to ensure compliance and tax efficiency.
GloBE information return
A key requirement of the system is the GloBE Information Return (GIR). Each entity within an MNE, both local and foreign, must submit this return to SARS.
Similarly, foreign MNEs operating in South Africa must submit a GIR to their own tax authority. The submission process varies based on specific circumstances. Entities can nominate either a local or foreign entity to submit a consolidated return on their behalf.
Some entities may not need to submit a return if another jurisdiction handles it. This exemption applies when a Qualified Competent Authority Agreement exists between jurisdictions. However, they must ensure complete and correct communication with key entities.
The Global Minimum Tax Act and transition year
The new legislation is backdated to 1 January 2024. This retroactive effect raises concerns about the time available for implementation. However, the Acts and GloBE rules specify a Transition Year to ease the adjustment process.
Normally, companies must submit their GIR 15 months after their year-end. For the first year, companies with financial years starting between 1 January 2024 and 1 January 2025 get an 18-month deadline.
For example, a company with a financial year starting on 1 March 2024 will submit its return by 28 August 2026. There are also exceptions and exclusions that MNEs must carefully review.
Penalties for global minimum tax non-compliance
Penalties for non-compliance are relatively small compared to typical MNE revenues. The base administrative penalty is up to R50,000. This doubles if the Top-up Tax exceeds R5 million.
The penalty triples if the Top-up Tax exceeds R10 million. However, these new Acts apply in addition to the existing Tax Administration Act. Late Top-up Tax can attract substantial penalties and interest under existing tax laws.
How should SA MNEs approach the new legislation?
First, they should read the OECD’s GloBE rules. The primary document, Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two), is available on the OECD website. Understanding the rules and terminology in this document is essential.
Next, MNEs should read the Global Minimum Tax Act and the Global Minimum Tax Administration Act. These documents are short, only around eight and four pages respectively, in both English and Afrikaans.
The OECD website also provides supporting documents. These include consolidated commentary, guidelines, explanations, and examples.
With this knowledge, MNEs can review their corporate and tax structures. They should also assess tax efficiency strategies and revenue impact. However, determining differences in multijurisdictional tax laws requires expert guidance. I strongly recommend consulting a tax expert with a strong legal function.
