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ATC241125: Report of the Standing Committee on Finance on the Global Minimum Tax Administration Bill [B21 - 2024] (National Assembly - section 75), dated 20 November 2024

Finance Standing Committee

3. Report of the Standing Committee on Finance on the Global Minimum Tax Administration Bill [B21 - 2024] (National Assembly - section 75), dated 20 November 2024

The Standing Committee on Finance, having considered the Global Minimum Tax Administration Bill [B21 - 2024] (National Assembly - section 75) referred to it, and classified by the JTM as a section 75 Bill, reports the Bill as follows:

 

  1. INTRODUCTION
    1. The Global Minimum Tax Administration Bill, 2024 establishes the necessary administrative framework for South Africa’s Global Minimum Tax (GMT) Act, aiming to ensure that multinational enterprises (MNEs) meet a minimum effective tax rate in line with the Global Anti-Base Erosion (GloBE) Model Rules. It outlines reporting, payment, and compliance requirements, as well as penalties for non-compliance. The Bill further outlines the procedural and compliance frameworks needed to enforce the 15% minimum tax on multinational enterprises.

 

  1. PUBLIC PARTICIPATION
    1. Published concurrently with the GMT Bill on 21 February 2024, the draft focuses on the administrative and reporting requirements to support the new tax regime. The consultations on 6 and 7 June 2024 allowed stakeholders to raise concerns about the administrative burden on South African businesses, with Treasury focusing on establishing a robust framework to support transparency and compliance with the global minimum tax standards.
    2.  On 17 September 2024, National Treasury and SARS briefed SCoF on the Draft Tax Bills. These include the Rates Bill, the 2024 Draft Taxation Laws Amendment Bill (TLAB), the 2024 Draft Tax Administration Laws Amendment Bill (TALAB), the Global Minimum Tax Bill, and this Bill.
    3. Following this briefing, SCoF issued a call for public comments and held public hearings on 8 and 9 October 2024, where stakeholders made written and oral submissions on the draft bills. These sessions allowed stakeholders to discuss and raise issues concerning the proposed tax legislation.
    4. On 23 October 2024, National Treasury and SARS presented to the Committee the Draft Response Document related to all the public comments and deliberations by the Committee on the draft bills. This document summarized the initial responses of National Treasury and SARS officials to the public feedback received during the public participation process, outlining the proposed actions to address the main issues raised.
    5. Following the public hearings and responses by NT and SARS, the Bills were presented to the Minister of Finance for approval. This included the Minister’s review and potential approval of any consequential amendments to the draft bills. After the final revisions made as a result of public comments, the Minister formally introduced or tabled the bills in Parliament on 30 October 2024.
    6. During the departmental consultation and the public participation process with the Committee, a total of 65 organizations and six individuals submitted comments, to which NT and SARS provided responses. This extensive engagement included a diverse group of stakeholders representing various industries, professional associations, educational institutions, government departments, and individual professionals.
    7. This process of consultation and public participation reflects a comprehensive engagement, enabling NT and SARS and the Committee to consider a wide range of views and concerns, ultimately facilitating more informed and inclusive law-making for this Bill.

 

  1. KEY PROVISIONS
    1. Under Clause 1, the Bill defines essential terms, including "Designated Filing Entity," "Designated Local Entity," and "GloBE Information Return" (GIR). These terms clarify roles and responsibilities within MNE groups, ensuring accurate submission of GIRs. A Qualifying Competent Authority Agreement (QCAA) is also defined, establishing which international jurisdictions allow for automatic exchange of tax information with South Africa.
    2. Clause 2 mandates that each Domestic Constituent Entity within an MNE Group must submit the GIR to the South African Revenue Service (SARS). This return can be submitted directly or through a designated local entity. To ensure compliance, a six-month notification prior to the filing deadline is required to identify the designated entity responsible for the GIR. Should a designated entity fail to submit or exit the MNE Group, all constituent entities are responsible for filing individually.
    3. In Clause 3, the Bill specifies that the GIR is due 15 months after the close of the Fiscal Year. However, for the first Fiscal Year ending on or after 1 January 2025, or in cases where the MNE Group files for the first time, an 18-month extension is allowed. Clause 4 provides an exception to local filing when the Ultimate Parent Entity or a designated filing entity is located in a jurisdiction with a QCAA with South Africa. In such cases, the local filing requirement is waived, provided SARS is notified of the entity’s jurisdiction and filing status six months prior to the GIR due date.
    4. Clause 5 sets the Top-up Tax payment deadline to coincide with the GIR submission date. Designated entities are allowed to pay on behalf of all Domestic Constituent Entities. Should there be non-compliance, SARS has the authority to assess the unpaid tax based on estimates, leveraging powers under the Tax Administration Act. Clause 6 governs refunds, requiring SARS to refund any overpaid tax in accordance with section 190 of the Tax Administration Act.
    5. The Bill’s Clause 7 addresses interest on unpaid tax or refund amounts under Chapter 12 of the Tax Administration Act. Any overdue tax or refunds will accrue interest as per the standard procedures. In Clause 8, the Bill introduces a penalty structure for non-compliance. Failure to file incurs a penalty of up to R50,000, with higher penalties if unpaid Top-up Tax exceeds R5 million (double) or R10 million (triple). These penalties are discretionary, allowing SARS flexibility in addressing initial compliance challenges, especially during the transition to the new framework.
    6. Clause 9 extends the record-keeping requirement for MNEs to seven years, aligning with the GloBE Model Rules. This extended period accommodates deferred tax liabilities, which can be revisited up to five years post-filing. Clause 10 designates SARS as the administrator of the GMT Act and this Bill, with procedural requirements guided by the Tax Administration Act where the Bill does not specify procedures. Additionally, Clause 11 authorizes the Minister of Finance to issue any ancillary regulations necessary for the implementation of this Act.
    7. The Bill’s Clause 12 specifies that the Act will come into force on the same date as the GMT Act, applying to Fiscal Years beginning after its effective date.
    8. The memorandum accompanying the Bill explains its alignment with the GloBE Model Rules while adapting to South African legal standards. The memorandum highlights that stakeholder consultations were conducted via SARS and National Treasury platforms, with public and institutional feedback incorporated. The financial implications were detailed in the 2024 Budget Review. Under section 75 of the South African Constitution, the Bill follows standard legislative processes without the need for referral to the National House of Traditional and Khoi-San Leaders, as it does not affect traditional or Khoi-San communities.

 

  1. PUBLIC SUBMISSIONS AND RESPONSES BY NT AND SARS
    1. The Draft Global Minimum Tax Administration Bill (GMTA) addresses the operational and administrative requirements for implementing the global minimum tax framework in South Africa. Stakeholders provided significant input on various provisions, leading to several amendments and clarifications by NT and the SARS.
    2. Regarding the definition of the GloBE Information Return (GIR), stakeholders expressed concerns about missing references to OECD documents and ambiguity in its application domestically and internationally. In response, the definition was revised to differentiate domestic filings by a Designated Local Entity (DLE) under Clause 2 from international filings by the Ultimate Parent Entity (UPE) or Designated Filing Entity under Clause 4. Consequential amendments to these clauses were also introduced to enhance clarity.
    3. The requirement to submit a GIR and notifications related to DLEs raised operational concerns about the format and platform for notifications. While NT and SARS noted these concerns, they clarified that the Tax Administration Act (TAA) would govern any administrative procedures not specified in the Bill. Operational specifics, such as whether notifications will be via email or eFiling, will be determined during implementation, incorporating stakeholder feedback.
    4. On the due date for filing the GIR, stakeholders sought alignment with other tax returns like the ITR14 and IT10B. NT clarified that filing timelines for different returns are determined independently, based on the GloBE Model Rules, to maintain international consistency. Regarding exceptions for returns filed under automatic exchange of information agreements, the revised definition and requirements under Clause 4 now provide clearer guidance.
    5. The payment of Top-up Tax under Clause 5 underwent significant revisions. The clause was updated to specify payment timelines and the role of DLEs or Designated Filing Entities. Additionally, the provision for estimating tax due was removed, enabling the Commissioner to assess entities based on TAA provisions.
    6. Stakeholders raised concerns about penalties under Clause 8, particularly their alignment with sections 211 and 212 of the TAA. NT refined the penalty structure, increasing penalties based on unpaid Top-up Tax amounts. Transitional penalty relief during the implementation phase was addressed by maintaining discretionary imposition of penalties and enabling standard appeal processes.
    7. The record-keeping period required by Clause 9 was a point of contention, with stakeholders advocating for consistency with the general five-year period under the TAA. NT partially accepted this, extending the period to seven years to align with GloBE Model Rules, which allow revisiting deferred tax liabilities within this timeframe.
    8. In terms of administration, Clause 10 was revised to clarify that the TAA applies to all administrative requirements not explicitly addressed in the Bill. This amendment removes ambiguity about when the TAA provisions are applicable.
    9. The short title and commencement provision under Clause 12 was also refined to ensure alignment with the Draft GMT Bill and provide certainty on its application to fiscal years starting after the effective date. Stakeholders' calls for practical implementation readiness prompted NT to confirm that operational aspects, including stakeholder engagement, would form part of the implementation phase.
    10. Overall, the extensive engagement and responsive amendments reflect a commitment to balancing regulatory compliance with practical considerations, ensuring the GMTA Bill is equipped to support South Africa’s implementation of the global minimum tax framework.

 

  1. COMMITTEE OBSERVATIONS AND RECOMMENDATIONS
    1. The Committee acknowledges the significance of the Global Minimum Tax Administration Bill in providing the administrative backbone for implementing South Africa’s Global Minimum Tax (GMTA) Bill. It recognizes the Bill as a vital step towards aligning domestic tax frameworks with international standards under the Global Anti-Base Erosion (GloBE) Model Rules. These measures aim to ensure compliance with the 15% minimum effective tax rate for multinational enterprises (MNEs) and address global tax base erosion.
    2. The Committee commends National Treasury (NT) and the South African Revenue Service (SARS) for their extensive stakeholder engagement, which allowed for critical input during the public consultation process. Feedback from 65 organizations and six individuals reflects a diverse range of concerns and suggestions from sectors including finance, business, and academia. The Committee notes that this engagement has led to significant revisions and clarifications in the Bill, enhancing its practicality and ensuring alignment with both international standards and South Africa’s legislative framework.
    3. The Committee notes with approval the amendments made to the definition of the GloBE Information Return (GIR), which now distinguishes between domestic and international filings. This differentiation ensures clarity in compliance obligations for domestic entities and multinational parent companies. Revisions to notification requirements and the inclusion of clear guidance for submissions through the Tax Administration Act (TAA) are welcomed.
    4. The Committee recognizes the importance of the extended record-keeping period to seven years for MNEs, which aligns with GloBE Model Rules. This extension ensures that deferred tax liabilities can be adequately reviewed, though the Committee acknowledges stakeholders' concerns about administrative burdens. The clarification that TAA provisions will govern procedures not explicitly addressed in the Bill is an important measure to reduce ambiguity in compliance.
    5. The penalty structure under Clause 8 has been refined to introduce proportional penalties for non-compliance, balancing enforcement with transitional flexibility. The Committee supports the discretionary nature of these penalties, which accommodates the initial challenges during the implementation phase. Similarly, the adjustments to the Top-up Tax payment and assessment process under Clause 5 enhance the operational clarity of the Bill, ensuring timely and accurate tax submissions.
    6. The Committee remains concerned about potential operational challenges related to the practical implementation of the Bill, particularly in the areas of GIR submission platforms and stakeholder readiness. It notes the importance of a smooth transition and encourages SARS to expedite the establishment of dedicated units or teams to address these challenges. The Committee recommends continued stakeholder engagement during the operational phase to ensure that issues are promptly addressed.
    7. In light of the Committee’s observations, the following recommendations are made:
      1. SARS and NT should ensure that detailed guidance and standard operating procedures are published well in advance of the first returns to facilitate stakeholder compliance.
      2. A dedicated SARS unit or team should be established to address operational challenges, ensuring timely support for MNEs and other stakeholders during the transition period.
      3. NT and SARS should conduct periodic reviews of the implementation process, with feedback from stakeholders, to refine administrative procedures and ensure alignment with international practices.
      4. The record-keeping and penalty provisions should be monitored to assess their practical impact on businesses, with adjustments considered as necessary to balance compliance with administrative feasibility.
      5. SARS should ensure that its digital infrastructure, including the eFiling platform, is fully equipped to handle the requirements of the Bill and supports seamless compliance for affected entities.

 

  1. CONCLUSION
    1. The Committee supports the Bill’s objectives and commends NT and SARS for their responsiveness to public input. It is confident that the Bill will provide the necessary framework to uphold South Africa’s commitment to global tax fairness while protecting its domestic tax base. Accordingly, the Committee recommends that the Bill, with its proposed amendments, be adopted.

 

The MKP reserve their position, and the EFF objects the report.

 

Report to be considered

 

 

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