Tax effective supply chains.
Does the design of your supply chains have an impact on corporate taxes paid? If your business is a multi-national, it certainly does. For those who imagine that supply chains and logistics is solely about moving and storing things, the recent French government demand for U$252m in back taxes from Amazon and the Australian tax office demand for $A28.5m in back taxes from Apple indicate the effects of supply chain design on the tax payable.
As an example, Apple Australia was reported in the Melbourne Age newspaper as being owned by Apple Operations International registered in Cork, Ireland, (with a low company tax rate), which in turn is owned by Apple companies in England, America and the British Virgin Islands (a tax haven where profits can be kept until required).
While the objective of your business should be the availability of products and services to meet customer needs, optimising operational and taxation costs should provide lowest total costs. To reduce total costs, a supply chain subsidiary company can be established in a low tax (but not low wage) country; demand and supply planning decisions are made there, but no goods physically pass through that jurisdiction, just the sales invoices and purchase orders. Factories are located where they can be treated as fee-for-service contractors, with the supply chain subsidiary providing materials and components and advising the destination of finished items. The ship-to warehouse may be a bonded facility in a low tax location within a region; sales entities in countries therefore hold minimum inventory and receive items ‘as required’.
Paying taxes
Although tax planning can impact all aspects of your global supply chains, the efforts of corporate tax departments are often focussed on corporate income tax issues, not sales and use taxes. Few supply chain executives talk with tax specialists!
As working capital and cash flow take on a higher visibility in business, companies that have a lower effective tax rate will keep more of the cash that flows through their supply chains. This is the competitive approach. The other factor to consider is moral – in countries not receiving tax revenue from companies operating on their soil, the government has a reduced capability to provide schools, hospitals and other services for their communities. Supply chain executives must make both moral and business decisions.
