Global Minimum Tax Act: A Guide for CIBA Members
The Global Minimum Tax Act, 2024 (The Act) was recently signed into law, representing a groundbreaking shift in international tax policy. Following the principles of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), the initiative introduces a coordinated system to ensure that multinational enterprise (MNE) groups pay a 15% minimum tax rate on income earned in all jurisdictions. The measure is aiming to eliminate profit shifting practices by MNEs to low-tax jurisdictions.
The Principles of Global Minimum Tax
The Act applies to fiscal years starting on or after January 1, 2024, and establishes two key mechanisms to enforce the 15% minimum tax through. These are the Income Inclusion Rule (IIR) and the Domestic Minimum Top-Up Tax.
The Income Inclusion Rule (IIR) - NNE Headquarters
The IIR applies to multinational enterprise (MNE) groups with headquarters in South Africa. It ensures that profits earned by their subsidiaries in low-tax jurisdictions (those with effective tax rates below 15%) are subject to additional tax in South Africa.
Essentially, South Africa, as the jurisdiction of the ultimate parent entity, has the right to impose a "top-up tax" on the profits of its subsidiaries to meet the 15% minimum effective tax rate. This prevents the parent company from benefiting from lower taxes abroad while operating globally.
Example on the Income Inclusion Rule
A multinational enterprise (MNE) headquartered in South Africa operates a subsidiary in Country X. The subsidiary generates R100 million in profits during the fiscal year. Country X has a corporate tax rate of 10%, which is below the global minimum tax rate of 15%.
This rule prevents MNEs from benefiting unfairly by shifting profits to low-tax jurisdictions. It ensures that a fair share of tax revenue is retained by the parent company’s jurisdiction, in this case, South Africa.
Step-by-Step Calculation:
Effective Tax Paid in Country X:
The subsidiary in Country X pays corporate tax at a rate of 10%.
Total tax paid in Country X is: R100 million × 10% = R10 million.
Top-Up Tax Calculation:
The IIR applies, requiring the South African parent company to pay a "top-up tax" for the shortfall.
The shortfall is the difference between the global minimum tax rate (15%) and the effective tax rate in Country X (10%).
Top-up tax: R100 million × (15% - 10%) = R5 million.
Outcome
SARS collects the R5 million top-up tax from the parent company in South Africa.
This ensures the subsidiary’s profits are taxed at the global minimum rate of 15%, even though the subsidiary operates in a low-tax jurisdiction.
The Domestic Minimum Top-Up Tax - Subsidiaries
The Domestic Minimum Top-Up Tax taxes profits earned within its borders by subsidiaries of foreign MNEs at a minimum of 15%. If these local subsidiaries pay an effective tax rate below 15% in South Africa, SARS collects a top-up tax to bring the effective rate up to 15%. This ensures that foreign-owned subsidiaries operating in South Africa do not escape the global minimum tax requirements, further securing the country’s share of tax revenue.
Example: Domestic Minimum Top-Up Tax
A subsidiary of a foreign multinational enterprise (MNE) operates in South Africa. During the fiscal year, the subsidiary earns R200 million in profits. The subsidiary pays corporate tax in South Africa at an effective tax rate of 12%, which is below the global minimum tax rate of 15%.
The Domestic Minimum Top-Up Tax ensures that South Africa collects additional tax to meet the global minimum tax rate for profits earned within its jurisdiction.
Step-by-Step Calculation
Effective Tax Paid in South Africa:
The subsidiary pays tax in South Africa at 12%.
Total tax paid is R200 million × 12% = R24 million.
Top-Up Tax Calculation:
The shortfall is the difference between the global minimum tax rate (15%) and the effective tax rate paid in South Africa (12%).
Top-up tax is R200 million × (15% - 12%) = R6 million.
Outcome:
SARS collects the R6 million top-up tax from the subsidiary in South Africa.
This ensures the profits earned within South Africa are effectively taxed at the global minimum rate of 15%.
Implications for CIBA Members and Their MNE Clients
Accountants and tax practitioners have a crucial role to advice and assist clients to ensure compliance including the following:
Assist your MNE clients in determining effective tax rates across jurisdictions and understanding potential top-up tax liabilities. MNEs operating in jurisdictions with low effective tax rates may face additional liabilities under the IIR or domestic top-up tax provisions.
Assist in accurate and timely compliance through filing of GloBE Information Returns and maintain robust records for at least seven years.
Guide clients in restructuring operations to align with the new tax framework without incurring excessive liabilities.
Get your Tax Practitioner license for FREE with CIBA Channel 2 CPD package and keep up to date and ahead in business in 2025!
Channel 2: Growth Channel (Opt-in)
For those seeking advanced knowledge, this channel offers 80 additional hours of expert-led CPD on in-depth and emerging topics. Available to members for a subsidised annual fee.
Channel 3: Specialist Channel (Exclusive to BAP(SA))
Specialised short courses in regulated fields, such as Independent Review and Tax Practitioner, lead to licenses recognised by regulatory bodies.
Choose Your Path to Exclusive Insights
Stay ahead in the world of accounting with premium content designed for professionals like you. Access expert articles, industry trends, and essential resources. Become a CIBA member and claim your CPD hours from CIBA.
CIBA Member Access
R250.00 FREE!
100% Discount when you become a CIBA Member. Join now to claim your CPD Hours. Register here: www.myciba.org/register
Premium
R250.00
Every month
Sign up to become an Accounting Weekly subscriber and gain access to exclusive premium content.
Trending
