By Karen Miller, a Consultant at Webber Wentzel

SARS acknowledges that South Africa's corporate tax rate at 28% is a global outlier in a world where corporate taxes are reducing.  Increasing corporate tax will undoubtedly increase the risk of base erosion and profit shifting ("BEPS") for multinationals seeking to shift profits offshore.  Therefore it is with relief that SARS seeks to address the budget imbalance through re-looking at tax incentives as a means of addressing BEPS whilst keeping a close eye on foreign investment.

Again we see a glimpse at how SARS will provide certainty on the tax treatment of inbound debt.  The draft interpretation note on thin capitalisation, now over 4 years old, has been a point of frustration for many multinationals looking to fund South African operations.  The statement that a discussion document will be released balancing simplicity of implementation, certainty and protection of the tax base is a welcome development. It is hoped that the discussion document takes into consideration the suggestions put forward by the Davis Committee to implement a simplified approach for small debt levels.

Minister Gigaba affirms South Africa's ongoing focus on the key mechanisms for addressing base erosion and profit shifting, notably through SARS' continued focus on transfer pricing and the transparency of where revenues are generated and taxes paid through the country by country reporting ("CbCR") and the automatic exchange of these reports with other tax jurisdictions.