What businesses need to know about the new Global Minimum Tax Act

To address tax avoidance and secure a share of global tax revenue from multinational enterprises (MNEs), the South African government has enacted the Global Minimum Tax Act and the Global Minimum Tax Administration Act.

President Cyril Ramaphosa signed the two into law on 24 December 2024, with retrospective effect, to apply for tax years starting from 1 January 2024.

MNEs are companies operating in more than one country, and the act applies to these companies with global consolidated group turnover revenues above €750 million in at least two of their previous four financial years.

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Breakdown of the Act

KPMG says the Act is based on the Global Anti-Base Erosion (GloBE) Rules, developed by the Organisation for Economic Cooperation and Development (OECD) and designed to enforce a jurisdictional minimum effective tax rate of 15% on foreign income earned.

“This initiative aims to ensure that the multinational corporations contribute their proportionate share of taxes to the countries in which they conduct business, and also seeks to curb ‘tax competition’ whereby nations reduce corporate tax rates with the intention of attracting investments.”  

What does the Act mean for SA?

Jordan Mulindi, a tax attorney at Latita Africa, says approximately 40 companies in the country appear to qualify for this tax.

Yet, their contribution to the country’s gross domestic product (GDP) and the resulting loss in tax revenue can be significant.

“These MNEs must make up the difference between their effective company income tax in low-tax regions and the 15% target, resulting in a Top-up Tax payable to Sars [South African Revenue Services].

“However, the OECD GloBE rules, often referenced in the new legislation, are remarkably complex and have sophisticated conditions.”

Mulindi advises companies to carefully review their corporate and tax structures and adapt them accordingly to apply the GloBE rules correctly and beneficially.

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GloBE Information Return

He adds that a core consideration of the system is the GloBE Information Return (GIR) that must be submitted to Sars by each entity belonging to the MNE (Constituent Entity), both locally and abroad.

Similarly, the Constituent Entities of foreign MNEs operating in South Africa must submit a GIR for their own tax authority.

Submissions can be made in different ways. Some entities may choose to nominate either a local or foreign entity to submit a consolidated return on their behalf, while some do not have to submit as this function is being performed in another jurisdiction having a Qualified Competent Authority Agreement with South Africa

“However, they do it. Communicating complete and correct information to key entities will be vital,” says Mulindi.

Transition year

Because the new legislation is backdated to 1 January 2024, there is concern that there will not be enough time to implement the systemic changes needed to satisfy it.

Mulindi adds that the Acts and the GloBE rules specify a Transition Year to accommodate this switchover.

Companies will normally be required to submit their GIR 15 months after their year-end.

“Initially, though, companies whose financial year starts between 1 January 2024 and 1 January 2025 will have 18 months after their year-end to submit.

“So, for example, a company whose financial year begins on 1 March 2024 will only have to submit a GloBE Information Return 18 months after its year-end on 28 February 2025,” says Mulindi.

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Penalties

He says non-compliance penalties are not significant compared to typical MNE revenues with a base administrative penalty of up to R50 000, double that if the Top-up Tax exceeds R5 million, and triple that if it exceeds R10 million.

“However, the new Acts are applied on top of – not instead of – the existing Tax Administration Act, in which case penalties and interest on late Top-up Tax can become substantial,” adds Mulindi.

How should SA MNEs approach the new legislation?

He advises the companies to read through the OECD’s GloBE rules in its primary document, Tax Challenges Arising from the Digitalisation of the Economy—Global Anti-Base Erosion Model Rules (Pillar Two).

The document can be found on the OECD website. This will help companies understand the rules and terminology used.

He adds that reading the Acts and their supporting documents, guidelines, explanations, and examples is also important.

“With this understanding, you can review your own MNE’s corporate and tax structures, tax efficiency strategies, revenue impact and more.

“However, when it comes to determining differences in multi-jurisdictional tax laws, agreements, and timings, and how to overcome these complexities, we strongly suggest you turn to a tax expert with a strong legal function.”

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