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.
PRETORIA – On 30 September 2023, the African Tax Administration Forum (ATAF) released 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, but why are DMTT rules important for African countries?
The DMTT is part of the GloBE rules, which aim to ensure that large multinational enterprises’ global profits are taxed at a minimum Corporate Income Tax rate of 15%. 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). Many African countries have granted tax incentives, which result in an effective tax rate of less than 15% for some multinationals, and these are likely to be impacted by the GloBE rules.
The DMTT allows the country where low tax profits arise from the tax incentive to collect that top-up tax rather than allowing it to be collected by the headquarters 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 tax incentives.
DMTT rules provide an important opportunity to strengthen Domestic Resource Mobilisation in Africa. ATAF remains committed to supporting African nations in developing and implementing effective tax policies that contribute to sustainable economic development, and DMTTs are an important tax policy issue.
To assist ATAF members in understanding how DMTT rules work and how the GloBE rules may impact Corporate Income Tax incentives granted in their country, ATAF will be holding a webinar on 10 November 2023 setting out the main features of the ATAF Suggested Approach and explain how the GloBE rules interact with a country’s tax incentives (DMTT).
Logan Wort, the ATAF Executive Secretary, expressed the importance of this Webinar for member countries. “The implementation of DMTT rules holds significant promise for African countries in enhancing tax fairness and ensuring a level playing field in the global market. This session is a crucial step in understanding the implications and opportunities this approach presents.”
All ATAF members are encouraged to participate in the Webinar where the ATAF International Tax team, who have been heavily involved in the GloBE rules negotiations at the Inclusive Framework and are the authors of the Suggested Approach, will provide an overview of the Suggested Approach and why African countries should consider enacting DMTT rules. They will also be available to answer questions from participants.
