Big tax change for these companies in South Africa

President Cyril Ramaphosa has signed a law to enforce a 15% global minimum corporate tax rate for multinational companies with over R14.4 billion in revenue for at least two of the past four financial years. 

This is part of a global effort to reduce tax avoidance by multinational companies, particularly technology companies, that use low-tax jurisdictions to minimise their tax payments. 

The Global Minimum Tax Act also aims to significantly reduce tax competition between countries to attract foreign investment from multinational companies. 

The law adopts the GloBE (Global Anti-Base Erosion) Rules developed by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting.

About 138 countries and jurisdictions agreed to introduce the Global Anti-Base Erosion GloBE rules developed by the G20 and the Organisation for Economic Co-operation and Development (OECD). 

University of Cape Town Professor Deborah Tickle explained that the implementation of the Act will introduce significant changes to how multinational companies are taxed in South Africa. 

Tickle told the SABC that the Act aims to ensure that global companies pay a minimum level of tax on the income they generate in South Africa. 

It also hoped the Act would prevent these companies from shifting their profits and offices to low-tax jurisdictions, eroding the tax base of countries where they make significant revenue. 

Tickle explained that these companies will have to establish the effective tax rate for their subsidiaries in South Africa and ensure it is above 15% after incentives and deductions are applied. 

If the effective tax rate is below 15%, these companies may be liable to pay an additional “Top-Up Tax” to ensure they pay their fair share. 

According to Tickle’s calculations, around 44 companies in South Africa fit the bill as a global company with significant operations in the country that generate over R14.4 billion of revenue annually. 

If the tax is implemented effectively, the National Treasury estimates that it could raise an additional R8 billion in tax revenue by the 2026/27 financial year. 

However, there is a significant problem, Tickle explained. The companies targeted by this Act and the global minimum tax rate are an extremely small set of businesses. 

This may mean that they are easy to monitor and easy to tax. But, it also means that they tend to be extremely well-organised and are unlikely to be heavily peanlised by this new Act. 

The few companies that are most likely to be affected are the American technology giants such as Apple, Google, Meta, and Amazon, which have been known to minimise the corporate income tax they pay. 

Chief among these has been Apple, which has extremely effectively routed its profits through low-tax jurisdictions to avoid paying high levels of corporate income tax. 

Tickle explained that these companies, however, have much more significant operations outside of South Africa so the implementation of the Act in the country may not squeeze much out of these businesses. 

The Act specifies the calculation and liability for the Top-up Tax, while the detailed procedures for reporting and payment are addressed in the Global Minimum Tax Administration Act.

Multinational companies operating in South Africa must evaluate their global effective tax rate, familiarise themselves with the Top-up Tax calculation methodology, and prepare for potential adjustments to their tax structures to align with the new requirements.

To adapt to the changing global tax landscape, the Act also empowers the Minister of Finance to revise the rules and regulations as needed.

The government emphasises that the Global Minimum Tax Act aims not just to increase tax revenue but to promote a ‘fairer and more equitable international tax system.’