ATAF bolsters tax collection in Africa

African Tax Administration Forum (ATAF) has unveiled its revised suggested approach to drafting Domestic Minimum Top-Up Tax (DMTT) legislation in anticipation of countries enacting GloBE rules.

These revisions aim to provide tax administrators, policy makers, and stakeholders with an enhanced framework to address contemporary challenges and ensure a fair and efficient taxation environment.

ATAF Executive Secretary, Logan Wort said the tax body remains committed to supporting African nations in developing and implementing tax policies that are effective and contribute to sustainable economic development.

“The release of these revised suggested approaches marks a significant milestone in our collective efforts to strengthen domestic revenue mobilisation,” he said. The DMTT is part of the GloBE rules that aim to ensure that 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),” Wort added.

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 advised 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 to 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.”

“ATAF stands ready to support its members to draft Domestic Minimum Top-up Tax Legislation using the Suggested Approach,” stated 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.”

Over 50 countries have announced that they will enact GloBE rules in 2024, and many will start collecting top-up tax that year