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ATAF Releases Draft Domestic Minimum Tax Legislation

The African Tax Administration Forum has released a Suggested Approach to Drafting Domestic Minimum Top-Up Tax Legislation under the Pillar Two GloBE Rules. 
 
For many African countries, enacting a qualified domestic minimum top-up tax would be the most beneficial way to protect their revenue base after the introduction of the Pillar Two GloBE Rules. 
 
This is because under the GloBE rules, the income inclusion rule is the primary method of collecting top-up tax, with the under-taxed payments rule applying (generally) as a backstop.
 
As such the GloBE rules generally favour residence jurisdictions (usually developed countries) as opposed to source jurisdictions (usually developing countries).  The subject-to-tax rule is targeted at source jurisdictions, but has a more limited scope (and we are still awaiting the draft model treaty provisions). 
 
As such, very few, if any, African countries will collect top-up tax under an income inclusion rule as most African countries have very few UPEs resident in their country.
 
As the under-taxed payments rule applies where there is no qualified income inclusion rule (subject to some exceptions) it is also unlikely the under-taxed payments rule will result in significant additional tax for African countries.
 
However, as a qualified domestic minimum top-up tax (QDMTT) applies before the top-up tax is collected under the income inclusion rule this allows African countries to collect this top-up tax generated by tax incentives in their country rather than allowing the residence jurisdictions to collect the top-up tax through the income inclusion rule. 
 
ATAF Suggested Approach
 
The report by ATAF includes draft legislation, as well as explanatory notes, for the introduction of a QDMTT for African countries. 

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