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.
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