October 12 2021

African Tax Administration Forum Comments on Global Tax Agreement

Source: IBFD Tax Research Platform News

The African Tax Administration Forum (ATAF) has issued a statement commenting on the significant progress made towards the global tax agreement (the agreement) that envisages implementing a two-pillar solution towards addressing the tax challenges arising from the digitalization of the economy.

The statement noted that ATAF and African members of the Inclusive Framework (IF) have been heavily involved in the negotiations and the ATAF has been providing technical support to its members to ensure that the new Pillar One and Pillar Two rules address the needs of African countries in ensuring that they are simple, equitable and bridge the gap in the existing tax rules that have been skewed in favour of developed countries.

Pillar One rules

The Pillar One rules incorporate many of ATAF Pillar One proposal recommendations, as follows:

  • the ATAF noted that the Pillar One scope was broadened to include all sectors rather than the narrower scope proposed in the OECD blueprint report released for public consultation in October 2020;
  • the ATAF underlined that the extractives sector has been excluded from the scope of Pillar One;
  • the ATAF welcomed the nexus threshold reduction from EUR 5 million to EUR 1 million and the lower threshold of EUR 250,000 for jurisdictions with GDP lower than EUR 40 billion. The ATAF expressed that this change to the nexus rule shall ensure that no member of the IF will be excluded from receiving its reallocation of profit under the so-called Amount A; and
  • the ATAF had opposed, together with the African Union Commission, the IF's initial recommendation to impose a mandatory dispute resolution mechanism for issues relating to Amount A as it would impose a costly process on many African countries with limited capacity and where there is little risk of double taxation. The ATAF has succeeded in obtaining an agreement that there will be no mandatory dispute resolution mechanism imposed on many African and other developing countries. Instead an elective binding dispute resolution mechanism will be available for issues related to Amount A for developing economies that are eligible for deferral of their BEPS Action 14 peer review (paragraph 7 of the Assessment Methodology chapter of BEPS Action 14 effective dispute resolution mechanisms) and have no or low levels of mutual agreement procedure (MAP) disputes.

The ATAF noted that the agreement does not reallocate part of the routine profit of in-scope MNEs to market jurisdictions. The ATAF stressed that it called for at least 35% of the so-called residual profit to be allocated to market jurisdictions. The agreement only reallocates 25% of the residual profit to market jurisdictions under Amount A. The ATAF acknowledged that the additional allocation of the global profits of the most profitable MNEs to market jurisdictions is a step in the right direction in the reallocation of taxing rights. However, it will not result in the substantial shift in the allocation of taxing rights between residence and source countries that ATAF and African countries have been advocating for to redress the current imbalance in the allocation of taxing rights which favours residence jurisdictions to the detriment of developing countries which are primarily source jurisdictions.

The ATAF expressed that fundamental reallocation of such taxing rights could have been achieved through the ATAF Pillar One proposals. The ATAF added that it will be calling for further work to be done in the global standard setting process to persuade the developed world to agree to a more equitable allocation of taxing rights to provide African and other developing countries with the tax revenue they need to rebuild their economies.

Pillar Two rules

Minimum tax

The Pillar Two rules aim to ensure that all the global profits of MNEs are taxed at least at a minimum effective rate of 15%. However, the ATAF highlighted for such a rule to be effective, the minimum effective rate needed to be at least 20% rather than 15% if it is to stem artificial profit shifting out of Africa as most African countries have a statutory corporate income tax rate of between 25% and 35%.

Rule design

  • The ATAF noted that the agreement gives priority to the Income Inclusion Rule (IIR) and that the Undertaxed Payments Rule (UTPR) will only apply in very limited circumstances. The ATAF has stated that a source-based rule such as the UTPR or the Subject to Tax Rule (STTR, which is a treaty provision rule) should be the primary rule under Pillar Two to assist in redressing the current imbalance in the allocation of taxing rights between residence and source jurisdictions.
  • The ATAF welcomed that the STTR will be a minimum standard that developing countries can require to be included in bilateral tax treaties with IF members applying nominal corporate income tax rates below the STTR minimum rate of 9%. The ATAF has called for the STTR to be broad in scope to cover payments of interest, royalties, all service payments, and capital gains. The IF agreed that the STTR will cover interest, royalties, and a defined set of other payments; the ATAF confirmed that it will continue to monitor what will be included within defined payments as this work progresses in the IF.


The ATAF announced it will work closely with the African Union and African countries on the implementation of the new rules within the timetable of the end of 2023 set out in the IF plan. The ATAF noted that the implementation must be done responsibly and in consideration of the fact that not all countries have a similar capacity to implement the rules.

Regarding the few IF members that have not joined the agreement and the other African countries that are not members of the IF, the ATAF has expressed concern about how the new rules will impact upon those countries and that political pressure should not be brought on such countries to apply these rules or to join the IF.

The work that the ATAF's membership and the African Union have done in the negotiations on the two-pillar solution has been ground breaking and pioneering work for Africa, and it has meant that for the first time, Africa has been able to have its tax policy objectives better reflected in the global tax rules.

The ATAF statement was released on 8 October 2021.