Global Minimum Tax Act
South Africa has enacted the Global Minimum Tax Act (Act No. 46 of 2024), aligning with the OECD/G20 Inclusive Framework's Pillar Two initiative to curb tax avoidance and profit shifting by large multinational enterprises (MNEs). This legislation applies retrospectively to fiscal years commencing on or after 1 January 2024.
Key features of the Act:
The Act mainly targets MNE (multinational enterprise) Groups with an annual total revenue exceeding € 750 million in at least 2/4 fiscal years of the coming reporting year.
The Act covers both domestic and international entities of such MNE’s.
The Act incorporates OECD rules which means these rules automatically apply to South Africa. If there are any amendments or updates from the OECD, South Africa will automatically follow these rules. The sole purpose of this is to ensure that South Africa is up to date with international tax standards and to ensure uniformity with other countries so that big organisations know what rules apply because they are the same with all countries that make usage of OECD rules.
GMT Top Up Tax
A top-up tax is an extra tax that large companies might have to pay if they don’t pay enough tax which is less than 15% in certain countries. The goal is to make sure all big multinational companies to pay at least 15% tax on their profits, no matter where they do business.
In South Africa, the Act mentions two types of “top up tax”. Mainly, income inclusion rule (IIR) and qualified domestic minimum top up tax (QDMTT).
IRR
If a South African parent company owns other companies in different countries, and those foreign companies pay less than 15% tax, then the South African parent must pay a “top-up” tax to make up the difference.
For eg. A South African company owns a subsidiary in a country where tax is only 6%. South Africa will then ask the parent company to pay the extra 9% so that the total tax paid is at least 15% in that country.
QDMTT
If a foreign company has operations in South Africa and pays less than 15% in South Africa then South Africa will collect the extra tax before other countries claim it.
For eg. If a multi-nat operates here and their payable tax is 9%, South Africa will then charge an extra 6% so that the organisation pays a total of 15% tax here and not in another country.
Companies Responsibilities
Large multinational organisations that are affected by the Act will need to follow the below procedure:
1. Fill out a special tax report called the GloBE Information Return (GIR).
2. Send it to SARS (the South African tax authority).
This is due 15 months after the organisation’s financial year ends.
The report needs to include the profit made in each country; how much tax was paid in each country; and whether the organisation needs to pay top up tax.
Compliance on affected organisations
The burden now lies on the organisations to gather and report detailed financial and tax data for each entity within the MNE group globally.
Companies need to invest heavily in tax reporting systems to ensure that the report is accurate especially because this opens up risk and audit exposure for MNE’s. SARS will most likely increase their audits. Therefore, organisations need to comply to avoid any penalties.
South Africa corporate tax
However, organisations that are operating in low tax countries might need to reassess their organisations.
Conclusion
South Africa’s Global Minimum Tax Act is more than just a new law. It’s a part of a global movement to make the tax system fair. It helps to ensure that big multinational companies don’t avoid paying their fair share by shifting profits to low tax countries. Ultimately, it protects South Africa’s tax revenue ensuring that the country benefits from the business activities happening within its borders.
