One area that is likely to receive particular attention in Finance Minister Enoch Godongwana's annual Budget this week is the implementation of the Global Anti-Base Encroachment (GloBE) Regulations.
South Africa has committed to implementation on January 1, 2025, but a discussion document, let alone a draft law, is still lacking.
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Under the Organization for Economic Cooperation and Development's (OECD) Comprehensive Framework, more than 140 countries have agreed to establish a two-pronged solution to address the challenges arising from the digitalization of their economies. Pillar 2 introduces a global minimum effective tax rate (ETR) of 15%.
Consistency with global tax systems
Marcus Sterow, head of transfer pricing at BDO, said the implementation of Pillar 2 was significant and significant as it demonstrated South Africa's alignment with the global tax framework.
Countries such as the UK and Australia, which are major trading partners, have already implemented Pillar 2. So it makes sense that SA would follow suit.
Moreover, it is “only a matter of time” as International Financial Reporting Standards has already published a document outlining how to disclose Pillar 2 in multinational companies' financial statements.
The OECD expects Pillar 2 rules to raise an additional $300 billion (approximately R5.68 trillion) worldwide.
Currently, more than a third (36.1%) of global profits are taxed at an ETR of less than 15%, and more than half (53.2%) of this profits are in high-tax jurisdictions (tax rates above 15%). It is estimated that there is.
Previous estimates only considered the impact of Pillar 2 in low-tax jurisdictions. But it is now estimated that $2.4 trillion of global net income is taxed at less than 15%.
Mr Stero believes there will be an announcement on Pillar 2 in Godongwana's budget speech. Pillar two could support additional collections, but welcome that it would not be from within South Africa, he says.
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Christian Wiesner, a member of the tax committee of the South African Institute of Chartered Accountants (Saika), said in a statement that Pillar 1 was still under discussion.
In last year's budget, ministers committed to publishing a discussion paper to enable stakeholders to comment on the draft legislation needed to implement Pillar 2.
new territory
Wiesener, who is also an associate director at KPMG, said the Pillar 2 rules would broadly apply to multinational enterprises (MNEs) with consolidated group revenues of more than €750 million in at least two of the past four years. explain.
“The so-called GloBE rules are complex and provide a mechanism for calculating a company's effective tax rate, but adjustments may be required based on the GloBE rules.”
The surcharge (to achieve the 15% global minimum tax rate) can be levied in three different ways: qualified domestic minimum surcharge, income aggregation rules, and undertaxed profits rules.
A further “conceptually different rule'' is the “taxability'' rule, which is a rule based on a treaty. This applies to a defined set of intra-group interest, royalties and other intra-group payments, Wiesener explains. Calculating the GloBE effective tax rate is more complicated than it appears, he added.
Mr Sterow said the implementation of Pillar 2 was new territory for everyone and that all the “practical issues” that might arise as a result of South Africa's unique economic position were still unknown. Masu.
He believes that few multinational companies are ready to implement Pillar 2. Some have begun analyzing global effective tax rates in their respective jurisdictions to identify potential additional tax liability.
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“However, implementing Pillar 2 in practice will be difficult at first, especially through different tax regimes. It will require significant coordination between tax jurisdictions and “Adjustments to tax compliance and planning practices may also be necessary,” he says.
“Adjustments to reporting systems may also be required, which can be costly and may not be something multinationals are willing to undertake in the current economic climate.”
Read: New global tax rules could cause African countries to lose out again
Carmen Westermeyer, a partner at Maitland & Associates, said the idea behind the rule is to see how much companies are paying in each geographic region in which they operate. said.
If the tax rate in a particular region is less than 15%, a company must pay an additional amount in either the country where it is headquartered or the country where its activities take place, depending on the double taxation agreement between the two countries. Countries.
She gives the example of a UK company with a subsidiary in SA. If the UK company calculates the tax and the SA subsidiary pays only her 10%, the additional 5% will be paid to the UK or SA. Double taxation agreements determine which country receives additional taxes.
Read: Tax authorities need to adapt to changing business environment
local law
SA requires local legislation that gives it the right to charge additional tax.
“This is a really complex system and there is not even a document for the discussion. SA was instrumental in promulgating the law with an effective date of January 1, 2025,” Westermeyer says.
Mr Wiesener said that although there were not many multinational companies in SA that met the criteria, there were many foreign inbound companies operating in SA.
“Wise selection of the best methodologies and implementation of appropriate Pillar 2 legislation could certainly support Sars collection efforts.”
It will be interesting to see what the minister announces on Wednesday, he added.
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