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Searching for ways to reduce costs? Consider viewing your supply chain from a tax-planning perspective. By looking for opportunities to reduce taxes on your functions, assets, and risks, you can reduce your global effective tax rate and increase earnings per share. The opportunities are especially robust in the key supply chain activities of procurement, logistics, product lifecycle management, and supply chain technology.
Traditional supply chain programs can deliver major gains over time, but they require significant investment upfront. To offset both upfront and ongoing costs, some leading companies are taking advantage of an often overlooked opportunity. They are beginning to make tax planning a full part of their supply chain initiative. This action will help them reduce their global effective tax rate, which is a common measure determined by dividing a company's worldwide pretax net income by its worldwide provision for income taxes as shown on the income statement. The result is an improvement in earnings per share in the context of their supply chain business strategy, while potentially reducing cash tax payments and tax compliance costs and risks. By aligning its tax and global supply chain strategies, a company can establish tax and legal structures that will create significant tax savings-often tens or hundreds of millions of dollars-while ensuring compliance with applicable laws and regulations. Because tax benefits from these initiatives often can be realized quickly-and continue to pay dividends annually-they potentially can lead to a more rapid and greater return on investment (ROI) for supply chain initiatives.
Business Case for a Tax-Aligned Approach
Supply chain initiatives can reduce operating expenses and working capital requirements, improve cash flow and asset utilization, and lead to the development of new intangible assets and improved profits. Yet standalone supply chain initiatives locus only on pretax cost reduction. As a result, they overlook the fact that for each dollar of operating savings generated, only a limited portion of the benefit-as little as 60 cents on the dollar, depending on the tax jurisdiction-will fall to the bottom line after taxes. Similarly, when tax planning is performed independently from supply chain planning, it tends to focus on historic levels of income and expense in the company. It fails to take into account how planned supply chain initiatives will reduce...