South Africa Issues a Draft Law to Transpose the OECD GloBE Rules & Adopts an Ambulatory Approach

On February 21, 2024, the National Treasury and the South African Revenue Service issued the Draft Global Minimum Tax Bill (the ‘Draft GMT Bill’), and the Draft Global Minimum Tax Administration Bill (the ‘Draft GMT Administration Bill’). They are subject to a consultation until March 31, 2024.

The Draft GMT Bill includes an Income Inclusion Rule (IIR), and a domestic minimum tax (intended to be a QDMTT) for fiscal years beginning on or after January 1. 2024.

The Under-Taxed Profits Rule (UTPR) is not included in the Draft GMT Bill.

Part II of the Draft GMT Bill transposes the OECD GloBE Model Rules into South African legislation by reference to the GloBE Model Rules, Commentary and Agreed Administrative Guidance. A dynamic reference is provided in Section 2 and 3 of the Draft GMT Bill.  In the Explanatory Notes to the Draft GMT Bill this is confirmed as an ‘ambulatory’ approach.

This means that the reference in domestic law automatically updates every time the Commentary and Administrative Guidance is updated.

Section 2 of the Draft GMT Bill provides that under the ambulatory approach, when applying the GloBE Model Rules and Commentary, the most recent version of the Commentary will apply (updated by any Administrative Guidance that has been published before the start of the fiscal year) in respect of calculations that are being performed.

Section 3 of the Draft GMT Bill states that wherever the GloBE Model Rules refer to the term “[insert name of implementing jurisdiction]” this is treated as referring to South Africa.

Section 4 of the Draft GMT Bill specifically applies the top-up tax calculation in the GloBE Model rules for the purposes of the IIR.

Certain provisions of the OECD Model Rules are specifically excluded in Section 5 of the Draft GMT Bill as they relate to the UTPR which is not being implemented in South Africa. This includes Articles 2.4 to 2.6 (UTPR charging provisions) and Article 9.3 (exclusion from the UTPR of MNE Groups in the initial phase of their international activity).