The Budget proposes to restrict net interest expense deductions to 30% of earnings for assessment years starting January 1, 2021.
South Africa’s latest Budget includes a proposal to restrict deduction of interest expenses.
The Budget – presented by Finance Minister, Tito Mboweni, on February 26 – proposes to restrict net interest expense deductions to 30% of earnings for assessment years starting January 1, 2021.
The Finance Ministry has launched for stakeholders’ comments a consultation on the design of the new rule.
According to the Minister, the measure “will address a typical form of base erosion and profit shifting by multinational corporations.”
“This practice involves artificially inflating company debt and/or the interest rate on that debt to a related party in another jurisdiction with a lower corporate income tax rate. The resulting interest payments are deducted in South Africa, reducing the domestic tax base and effectively shifting profits to be taxed at a lower rate offshore,” the Minister told Parliament.
The author is Alex Hunter, Editor, TP News. He oversees and updates the publication and also regularly writes news stories about transfer pricing and international tax law. Alex is reachable at editor@transferpricingnews.com
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