GLOBAL MINIMUM TAX: IMPLICATIONS FOR SOUTH AFRICA AND BRAVURA’S PERSPECTIVE
The global minimum tax (“GMT”), led by the OECD and G20, aims to curb perceived tax avoidance by large multinational enterprises (“MNEs”) and ensure increased tax collections to fund global government expenditure which has not returned to normal since the global pandemic. With a mandated 15% minimum rate, it seeks to reduce perceived tax competition and prevent so-called profit shifting to lower tax jurisdictions. Its implementation raises concerns, also for South African businesses and investors.
Understanding the Global Minimum Tax
The policy sets a 15% minimum tax for MNEs earning over €750 million, with a top-up tax applied where necessary. This aims to create so called tax transparency and fairness. Its complexity presents significant challenges. Compliance burdens are also substantial, and Pillar One – intended to regulate digital taxes – faces criticism due to a lack of consensus. The USA strongly opposes the broader framework, citing sovereignty concerns and mooting potential retaliatory measures, such as increased taxation on foreign corporates in event that it is applied to USA corporations.
President Trump has recently issued an executive order to counter the 15% global minimum tax. This opposition includes potential retaliatory measures against companies from countries implementing the tax (such as a 20% additional tax on such foreign companies operating in the USA).
Impact on South Africa
South Africa is hoping to collect R8 billion from the tax in 2025/26. While this revenue boost is beneficial, economic implications include:
- Increased Tax Burden: Multinationals face stricter compliance, potentially affecting profitability and investment.
- Impact on FDI: Additional tax, regulatory and compliance burdens may deter international investment in South Africa.
- Economic Disruptions: Uncertainties in financial reporting could lead to corporate tax planning issues.
Bravura’s Perspective
Ian Matthews, Head of Business Development at Bravura, underscores the need to balance benefits and risks.
“The GMT represents a further shift in international taxation. While it seeks to curb tax avoidance, it does not have universal support (opposition from the USA, in particular) and its substantial complexity cannot be ignored. The compliance burden is significant, and the lack of universal implementation creates material legal uncertainties. South Africa’s adoption may boost revenue, but broader negative investment implications may not be supportive of growth and job creation,” says Matthews.
Kemp Munnik, Head of Structured Solutions at Bravura, further highlights the potential challenges for businesses operating in South Africa.
“Multinational enterprises must reassess their tax strategies and reporting structures to remain compliant. The added administrative burden, coupled with uncertainty over global support and enforcement, may lead to increased costs and reduced operational flexibility. South African businesses will need to be proactive in adapting to this evolving tax landscape,” says Munnik.
Looking Ahead
As the tax framework evolves, businesses must remain vigilant and adaptable. Matthews and Munnik recommend proactive planning to mitigate the financial cost and regulatory risks caused by, amongst others, the legal uncertainty associated with the USA opposition to the GMT.
