In today’s final newsletter for the year, we round up some of the key tax highlights of 2022.  It certainly has proved to be one of the most exciting (yes we know this term is not usually used to describe tax) and dynamic years in the recent global fiscal landscape.  So, what’s happened?

OECD BEPS initiative revs up via unilateral framework

We’ve all been bored to tears by the long-running two-pillar BEPS saga which the OECD has been flogging for many years (institutional gaslighting anyone?).  However, thanks to old Joe (Biden) this initiative really gained traction in 2022, culminating in over 130 countries agreeing to implement these new rules, i.e. the unilateral framework.

As a recap, Pillar One applies to re-allocate part of multinational groups’ profits to the countries where they sell their products and provide their services, i.e. where their consumers are not just where the companies are based, we’re looking at you Amazon, Netflix, Facebook et al.  See here for our previous newsletter.

And of course Pillar Two determines that qualifying multinationals would now be subject to a global minimum corporate tax of 15%, likely to be levied as a top-up tax in their home country, see here for our previous post on this.

So Joe got the gang to sign up and it looks like it’s finally going to happen, although delays in implementation and disagreement on the policy details have, of course, pushed the timeline for Pillar One to mid-2023 and Pillar Two to 2024 at the earliest. Relevant governments are currently developing implementation plans and turning the agreement into law.  Not African governments though, as we have also seen African countries saying they don’t like Pillar Two as it is unfair to developing countries that won’t have residents qualifying for the top-up tax. So they are still focussing on their favourite weapons, withholding taxes, reverse VAT, and digital services tax, wrapped up in a general Transfer Pricing glove, see here for our previous newsletter. So Africa won’t change with the rest of the world, but big changes are a-coming, so watch this space in 2023.

UK tax flip flops

What a year it’s been for the UK….  To be kind, as the Irish always are to their favourite neighbour, we won’t dwell too much on the various UK shenanigans but will focus purely on the significant tax changes and changes to those changes which brought down Liz Truss’s government.  In a nutshell, tax is definitely going up to 25% corporate tax from next year from a jolly nice 19%, and many critics view this increase as a big blow to businesses as well as to the Government’s pro-growth tax policy.

While of course, the rate of corporate tax should never be the main reason for choosing a jurisdiction, it is important and we think the higher rate will reduce the UK’s attractiveness from a structuring perspective.

Key South African changes

Loop structure uncertainty

On 4 January 2021, the SA Reserve Bank issued a Circular which relaxed the loop restrictions for South Africans to ultimately hold assets or South African loans through a foreign structure. In terms of the Circular, the relaxation was made “in order to support South Africa’s growth as an investment and financial hub for Africa, it is advised that the full ‘loop structure’ restriction has been lifted to encourage inward investments into South Africa”

Many South Africans have used the relaxation of the rules to implement structures to extract the value of their existing South African structures from South Africa instead of to “support South Africa’s growth as an investment and financial hub for Africa”, which of course the dear old Reserve Bank did not take kindly to. This resulted in the Reserve Bank placing a hold on the “placing on record” of loop structures until they narrowed the relaxation rules down to combat the misuse of loop structures.  South Africans are on the edge of their seats waiting for the updated Circular from the Reserve Bank, so hopefully, clarity will come early in 2023.

SARS intention to withdraw Practice Note 31

Many taxpayers and organisations have lodged objections to this intended change in SARS practice, which has been in existence since 1994, as we discussed in our newsletter here, and which basically would refuse interest deductions in many group scenarios. The outcome of this proposed amendment remains to be seen. We do however doubt (or hope!) that it will be withdrawn in its entirety.

Foreign Pension Trust

2022 also saw a stonker of a binding class ruling by SARS which highlighted the importance of understanding the rules of any product that South African residents are investing in, as we discussed in our newsletter here.

The product was a non-resident pension scheme trust, and SARS ruled that the foreign pension trust was not actually a pension fund, provident fund, or a retirement annuity fund as defined in the Income Tax Act and therefore the benefits associated with a pension product would not apply.  The shock waves are still reverberating!

So that’s our wrap-up of key tax developments in 2022, we hope you’ve enjoyed our newsletters and we’re looking forward to engaging in the year ahead.  As always, if you’ve any questions, please contact us.

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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.