Global Minimum Tax – What Is the Real Cost?

The Budget indicates that expected revenue from the global minimum tax for the 2026/27 fiscal year is estimated at R2 billion, a significant reduction from the previous estimate of R8 billion. According to the Budget, this downward revision is attributable to more recent data and updates to the OECD rules. However, no explanation is provided as to how the revised R2 billion figure has been calculated.

By way of background, the global minimum tax was introduced by the OECD to address profit shifting by multinational groups to low- or no-tax jurisdictions. Many countries, including South Africa, already have anti-avoidance measures in place to combat such practices, most notably transfer pricing rules.

In broad and simplified terms, the global minimum tax operates on the principle that, notwithstanding the shifting of profits to low-tax jurisdictions, the ultimate holding company, South African in this case, may still be required to pay a top-up tax. This tax effectively brings the overall taxation of foreign profits up to a minimum agreed level where those profits have been subject to little or no tax offshore.

An interesting countermeasure adopted by several low-tax jurisdictions is the introduction of a domestic minimum tax. Under this approach, if a global minimum tax would otherwise be imposed by another country, the low-tax jurisdiction itself levies a tax (typically at 15%) on the relevant profits. This generally has the effect of preventing the home country, such as South Africa, from imposing the global minimum tax.

To illustrate, assume Country M does not ordinarily levy corporate income tax. In the absence of a domestic minimum tax, South Africa could impose a global minimum tax on profits earned in Country M. In response, Country M introduces a 15% tax applicable in these circumstances. As a result, South Africa would typically be precluded from levying the global minimum tax, as the profits are no longer regarded as undertaxed.

Despite this, South African companies are still faced with a substantial compliance burden. Even where no global minimum tax is ultimately payable, affected companies must comply with complex and newly introduced rules. These rules are technically demanding and often require specialist expertise, resulting in significant additional compliance costs.

SARS will likewise incur costs in implementing the regime, including training staff on the new legislation and managing the associated administrative burden.

The key takeaway is that a larger number of companies than initially anticipated are required to comply with the global minimum tax framework, at considerable cost. Whether the anticipated revenue of R2 billion justifies this outcome is difficult to assess. Nevertheless, in a global environment where many countries are adopting these rules, opting out is not a realistic alternative for South Africa.