The African Tax Administration Forum (ATAF) is pleased to announce the release of its revised Suggested Approaches to Drafting Domestic Minimum Top-up Tax (DMTT) Legislation. This comprehensive update reflects ATAF’s commitment to fostering fair and effective tax systems across the African continent.
The DMTT is part of the GloBE rules which aim to ensure all the global profits of large multinational enterprises are taxed at a minimum Corporate Income Tax rate of 15%. Many African countries have granted tax incentives which result in an effective tax rate of less than 15% for some multinationals. Under the GloBE rules, where a tax incentive results in an effective rate of less than 15%, the GloBE rules will lead to another tax jurisdiction, usually the jurisdiction where the multinational is headquartered, collecting the difference between the effective tax under the tax incentive and the minimum effective rate of 15% (the top-up tax).
The DMTT allows the country where the low tax profits arise from the tax incentive to collect that top-up tax rather than allowing it to be collected by the headquarter jurisdiction.
Over 50 countries have announced that they will enact GloBE rules in 2024, and many will start collecting top-up tax that year. Therefore, African countries are strongly recommended to immediately enact DMTT rules to protect themselves from giving away taxing rights to developed countries on top-up tax arising from their own tax incentives.
The Suggested Approach provides three drafting options for countries for enacting a DMTT and these take into account the OECD administrative guidance to ensure the DMTT results in the same amount of top-up tax as the Income Inclusion Rule. This, we believe, will remove potential pressure on African countries in terms of Foreign Direct Investment as it will mean that the DMTT only taxes the tax incentives to the same extent as the Income Inclusion Rule.
Broadly these are:
- Brief skeleton provisions for enacting a DMTT in the primary legislation that is enacted through a parliamentary process, supported by more detailed supplementary regulations that could be issued by the relevant Minister.
- Enacting a DMTT by incorporating the GloBE rules by reference with only the necessary modifications to make it appropriate to the DMTT context.
- A DMTT based on the GloBE rules with all of the rules contained in the primary legislation.
The Suggested Approach includes extensive explanatory notes to understand better what each provision seeks to achieve. ATAF has revised its Suggested Approach to Drafting DMTT Legislation in anticipation of countries enacting GloBE rules. These revisions aim to provide tax administrators, policymakers, and stakeholders with an enhanced framework to address contemporary challenges and ensure a fair and efficient taxation environment.
Logan Wort, the ATAF Executive Secretary, commented, “The release of this revised Suggested Approaches marks a significant milestone in our collective efforts to strengthen domestic revenue mobilization. ATAF remains committed to supporting African nations in developing and implementing tax policies that are effective and contribute to sustainable economic development.”
Key highlights of the revised suggested approaches include:
Alignment with International Standards: The updated Suggested Approaches align with international best practices to facilitate harmonization and coherence in tax rules.
Inclusivity and Consultation: ATAF has prioritized inclusivity by engaging in extensive consultations with tax experts, government officials, and other stakeholders. This collaborative approach ensures that the Suggested Approaches are well-grounded and practical.
Adaptability to National Contexts: Considering the diversity of tax systems across African nations, the revised guidelines provide flexibility for adapting to individual countries’ unique needs and contexts.
“ATAF stands ready to support its members to draft Domestic Minimum Top-up Tax Legislation using the Suggested Approach” stated Logan Wort. “ATAF is launching an extensive programme to assist countries undergoing impact assessments, which will determine their policy options and, where necessary, draft and introduce a Domestic Minimum Top-Up Tax”, he continued.
The revised ATAF Suggested Approaches to draft Domestic Minimum Top-Up Tax Legislation is accessible here: https://bit.ly/46wRk9U