PODCAST | Big business faces a global minimum tax to even the playing field

In the latest edition of Business Law Focus, host Evan Pickworth interviews Michael Hewson, founder and director of Graphene Economics. They discuss key trends for big business on the transfer pricing front and unpack the recently introduced Global Minimum Tax Bill.

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The Context

Transfer pricing (TP) refers to the pricing of goods, services and intangible assets that are transferred between divisions, subsidiaries or related entities within the same multinational entity (MNE). It determines how profits are allocated across different countries or jurisdictions, which can have significant tax implications.

TP and related issues will remain a priority for revenue authorities across Africa, while the tax function within organisations increasingly takes centre stage in managing and mitigating business risks. 

SA finance minister Enoch Godongwana introduced the Global Minimum Tax Bill in October to provide for the introduction of the Global Anti-Base Erosion (GloBE) rules in SA and the imposition of top-up tax. It is deemed to have come into operation on January 1 2024.

Multinational corporations with annual revenue exceeding €750m will be subject to an effective tax rate of at least 15%, regardless of where their profits are generated. Government proposes to introduce two measures to effect this change — an income inclusion rule and a domestic minimum top up tax — for qualifying multinationals.

The proposed reform is expected to yield an additional R8bn in corporate tax revenue in 2026/27.

Graphene Economics says with complexity on the rise, TP consultants need to be exposed to a business’s operations to gain a deeper understanding of the company’s business model, including its value chain, cost structures and profit drivers. 

“This insight allows us to develop TP strategies that are more aligned with the company’s actual economic activities. Being in tune with the operational realities of a business ensures that we’re able to better tailor our solutions to the specific needs and circumstances of the company.

“This in turn results in improved risk management (by addressing potential compliance issues proactively), streamlined decision-making (as we can provide insights into how operational changes might impact TP strategies), and better contribution to value creation (as we’re not just managing TP compliance, but able to ensure TP strategy plays more of a part in the overall efficiency and profitability of the business),” says Michael Hewson.

Graphene’s founder and director.

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