Tax Effective Supply Chain Management (TESCM)

Transcription

1 Tax Effective Supply Chain Management (TESCM)

2 EY s global TESCM network Amsterdam San Jose Los Angeles Mexico City Dallas Houston Detroit Toronto Boston New York Philadelphia Pittsburgh Minneapolis Chicago Charlotte Atlanta Zurich London Geneva Tokyo Shanghai Hong Kong Singapore Sao Paulo We are positioned globally to provide sustainable tax effective options for companies undergoing business change.

3 What is TESCM? TESCM is an approach to aligning an enterprise s tax and treasury profile with its operational footprint to improve the after-tax return of business transformation initiatives and achieve a competitive and sustainable tax rate that is driven by operational strategy and growth. It is applicable to most value chains, including retail and consumer products, life sciences, technology, media and entertainment, aerospace, engineering, automotive, general manufacturing and services businesses. The prevailing business, economic and tax environment is challenging for multinational enterprises striving to achieve profitable growth and maintain their competitive advantage. A variety of cost reduction and business transformation initiatives are commonly undertaken in pursuit of these objectives, including: Low-cost sourcing/shared service centers Customer-driven supply chains Centers of excellence Rationalization of the manufacturing footprint/lean manufacturing/make vs. buy decisions Centralized procurement and sourcing activities Migration or expansion into new or emerging markets New product offerings Network optimization Mergers and acquisitions Research and development centers/centralization of intellectual property (IP) commercialization The execution of these initiatives and their solutions typically involve some shift in an enterprise s geographic footprint, which in turn changes its tax footprint by altering the allocation of taxable profits between relevant taxing jurisdictions. Without any planning, this change in the global tax footprint can have unintended consequences for an enterprise, such as an increased effective tax rate and compliance burden, trapped profits, irrecoverable withholding or other local taxes, increased indirect tax costs and poor cash flow, all contributing to a suboptimal outcome on an after-tax basis. On the other hand, integration of tax and operations planning from the outset enables the alignment of the tax and business strategies in a manner that not only manages tax risk inherent in changing the transactional flows and functional profile, but also unlocks the potential for enhanced after-tax profits from the new operating model by centralizing existing and newly created value in jurisdictions that are both business- and tax-friendly. The value proposition Simply stated, successful business initiatives will yield increased profits profits that are subject to tax wherever earned. Hence, as a general rule, every dollar of increased profit will be eroded by the tax levied thereon. If taxation can be reduced, the after-tax profits are enhanced. Similarly, tax planning on a stand-alone basis will only reduce the rate of tax on existing pre-tax profits. The key to TESCM is integrating the two and reducing the tax burden on a larger profit pool. The example below illustrates this value proposition: Current planning only Tax planning only TESCM planning Revenue 1,000 1,000 1,000 1,000 Expenses Net profit before tax Tax rate 35.0% 35.0% 30.0% 20.0% Tax After-tax income Base case More income More tax Same income Less tax More income Less tax Scalability in TESCM planning TESCM concepts and designs are scalable and can be applied on a product line, geography and/or value chain functional basis in a timely manner and on a timeframe that is compatible with a s current and future business strategy and vision. The chart to the right illustrates this transformation along a continuum of change. All companies are different in terms of where they start and where they pause, or stop, along the continuum. The key to success is in finding the right balance between operational change and the associated benefits that work for the.

4 High Brand and IP management Value Demand aggregation Negotiation Contracting/ framework agreements Supplier management/ development planning Inventory ownership and management Manufacturing strategy Research and development strategy management Sales and marketing principal Full principal (central operating model) Sales and marketing strategy Pricing policies Import/export Low Service Sourcing Logistics management Import/export processing Freight forwarding Low Potential business impact High EY s multidisciplinary approach and methodology At EY, we have built a unique approach to TESCM planning that is premised on the fact that integration of all interested parties and key stakeholders throughout the planning process is critical to success. Our program is built around well-defined phases that provide methodical development and validation of strategies, as well as effective implementation, governance and controversy-readiness. Our starting point is to obtain a clear understanding of a s operational and financial goals and its business transformation initiatives to accomplish those goals. From there, our objective is to integrate tax into the overall planning process so that the planning outcomes accomplish the organization s business, treasury and tax objectives. Through the breadth and depth of our Tax, Advisory, Transaction Advisory Services (TAS) and Assurance practices, we are strategically positioned to assist you in selecting integrated services tailored to your organization s facts and circumstances. Valuation People and organizational Accounting and reporting Corporate tax Compensation Financial Accounting Advisory Services Integrated EY TESCM teams Risk Tax and legal restructuring Customer Key to capabilities Advisory Tax TAS, Assurance Treasury Customs/ international trade Indirect tax/vat Global mobility Location advice Program management Finance transformation

5 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com EYGM Limited. All Rights Reserved. EYG No. YY3034 CSG No West ED 1/6/14