The Treasury has agreed to amend the draft Global Minimum Tax Bill to ensure that parliament will have to approve any amendments made to the global rules before they apply in SA.
This was one of the proposals made during public hearings on various tax bills held recently by parliament’s standing committee on finance.
On Wednesday, the Treasury said in its response to the comments at a committee meeting that any international updates would lapse unless approved by parliament.
The draft bill adopted the Organisation for Economic Co-operation and Development (OECD) rules on a global minimum tax by reference, meaning it did not fully integrate the rules into domestic law. Any future updates or changes to the OECD rules would automatically apply in SA without passing through the legislative process.
The Treasury said the draft bill had been updated to include clauses that enabled the minister of finance to update the rules as they were amended internationally “while preserving the right to make such modifications as may be required by the SA context. The updates will lapse unless approved by parliament.”
The incorporation by reference approach, which has been adopted in other countries such as Switzerland and New Zealand, was adopted as it simplified the implementation of the rules and made it easier for multinational enterprises to comply.
The Alternative Information Development Center (AIDC) and the Institute for Economic Justice (IEJ) said in a submission to the committee that they opposed the implementation of the OECD rules in SA and the fact that they would be implemented “by reference”.
“This approach compromises public oversight over SA tax policy. Future changes will not pass through the legislative process because they are automatically applicable,” the NGOs said in their submission.
The NGOs proposed instead that the bulk of the OECD rules be directly incorporated into the bill with substantial revisions being introduced annually in a tax amendment bill. Alternatively, the finance committee and the public should be briefed on any relevant updates or revisions to the rules.
In terms of the draft Global Minimum Tax Bill announced in the February budget, Sars will be able to collect a top up tax for qualifying multinationals paying an effective tax rate of less than 15% in SA. In terms of the proposed income inclusion rule, SA will be able to apply a top-up tax on profits reported by qualifying local multinationals operating in other countries with effective tax rates below 15%.
Any multinational with annual revenue exceeding €750m will be subject to an effective tax rate of at least 15% regardless of where its headquarters, operations, sales or profits are located.
The Treasury stated in the February budget review that it expected to increase tax collection by R8bn in 2026/27 as a result of the tax.
The Treasury did not accept the objection to the draft bill that the implementation of the tax from January 1 2024 would be retrospective and would mean that multinational groups with financial year-ends on December 31 would be subject to the tax even before the legislation was finalised and approved by parliament. The SA Institute of Chartered Accountants (Saica) recommended an effective date of January 1 2025.
“SA’s intention to implement the rules has been long stated in budget documentation. Implementing it at a later date would mean that jurisdictions that have implemented the income inclusion rule would be in the position to levy tax on income in SA that has not been subject to [the] minimum tax of 15%,” the Treasury said.
“From the technical perspective, the tax under the bill is determined at the end of the fiscal year and if the legislation is in place before that date, it is not retrospective. In addition, a period of 18 months is allowed to file the relevant returns.”
The Treasury also rejected comments that the tax would increase the tax burden and compliance costs and deter multinationals from investing in SA. It said that in many cases they would already be subject to the same rules in other jurisdictions.
However, it said it has been working on simplifications to the rules to reduce the compliance burden for businesses. It also noted that under the global minimum tax framework, income would always be subject to the minimum tax rate, even if it was moved to countries that had not implemented the rules. In such scenarios, the multinational would need to pay additional taxes to countries that have adopted the rules.
“This ensures that there is no benefit to being in non-implementing countries and prevents businesses from bypassing these rules,” the Treasury said.
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