As discussed in our article, Mirror, mirror on the wall, which country will be the next to fall? Living La Vida Loca in a post BEPS world, issued in April 2022, we explored the OECDs Pillar One and Pillar Two initiatives. In that newsletter, we detailed a few surprising countries which have implemented legislation to comply with the Pillar Two minimum global tax (like the UAE suddenly announcing a corporate tax and Ireland, one of the initial staunch opponents of the minimum tax, increasing their tax rate to 15%).

Since then there have been even more developments in this arena, and it appears that countries are now racing to meet the OECD’s 2023 deadline.

Mauritius was one of the first out of the blocks in terms of implementing legislation around the minimum tax. It was announced on 7 June 2022 in Mauritius’ 2022 Budget that a domestic minimum top-up tax will be introduced to ensure that Mauritian resident companies which form part of global groups who are subject to the minimum tax rules will be taxed at a minimum rate of 15%. Thus, if any underlying subsidiaries are getting a tax break or earning revenues in a low-tax jurisdiction, Mauritius will levy a top-up tax. No insights are as yet known as to how this will be implemented in practice

In addition, the Swiss Federal Council on 13 January 2022 announced that Switzerland will also impose a supplementary tax on qualifying groups that pay below the minimum 15% effective tax rate. It is expected that the Swiss public will vote on a constitutional amendment in June 2023, providing the basis for an implementation beginning in 2024.

In South Africa (“SA”), it appears likely that a to up tax will also be implemented as part of the 2022/2023 taxation laws amendment process. We anticipate that this will be accommodated as part of SA’s controlled foreign company rules, but that is yet to be seen.

The USA also recently proposed tax legislation making major changes to the  Global Intangible Low Tax Income (“GILTI”) regime (which is similar to CFC legislation) in line with OECDs minimum tax rules

With the clock ticking fast and so many aspects of Pillar Two still to be clarified in different countries worldwide, it’s important to keep a close eye on legislative developments in this regard.

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How you structure your business is a critical question as you expand globally.  The right structure will protect your assets, improve your currency position, support your business operations, facilitate future business expansion and changes, and optimise your overall tax rate. Trying to unscramble a sub-optimal structure entered into in haste or without full consideration of relevant facts is complex and expensive, so it’s important to plan upfront.

Structuring an international business is both a science and an art – this is our specialist area of expertise. Regan van Rooy is an international tax and structuring advisory firm focussing on Africa. We have offices in South Africa, Mauritius and Ireland and we can help you with any international tax or structuring query.