Are Global Anti-Base Erosion Model Rules Suitable for South African Income Tax Framework?

Abstract

The digital economy has significantly challenged traditional international and domestic tax frameworks, which rely on the principle that profits should be taxed where economic activities occur. Multinational enterprises can now operate within market jurisdictions without a physical presence, thereby eliminating tax nexus and exacerbating base erosion and profit shifting (BEPS). In response, the Organisation for Economic Co-operation and Development (OECD) introduced the Global Anti-Base Erosion (GloBE) Model Rules. However, these rules adopt a uniform approach that does not adequately consider the unique needs, economic contexts, and tax frameworks of developing countries such as South Africa. This study evaluates the impact of the digital economy on the South African income tax framework and assesses the suitability of the GloBE Rules within this context. A doctrinal research approach was employed to analyse and interpret relevant legislation, policy documents, and academic literature. The findings indicate that the adoption of the GloBE Rules aligns with the objectives of the South African legislative framework in protecting the tax base and is consistent with the intended outcomes of the Model Rules. However, the study finds that the expected tax revenue gains for South Africa are likely to be limited, as the rules primarily benefit developed economies, leaving South Africa with residual benefits. Furthermore, the high revenue threshold restricts the application of the rules to a small number of multinational entities, allowing others to continue engaging in tax avoidance practices. The rules also constrain South Africa’s flexibility in utilising tax incentives. Overall, while the Global Minimum Tax supports key tax principles, it does not fully address the challenges posed by the digital economy and is therefore not entirely suitable for the South African context.