When it Comes to Total Cost, Don’t Ignore Government’s Taxing Role (Part 1)

Earlier this year, when I gave my 2010 predictions presentation at a number of events, one of the scenarios I posited was that "The taxman [will] get paid too much -- unless we get creative with procurement and tax minimization strategies." With US, UK and continental budget deficits looking worse than ever before, a few months later, it's a pretty sure bet that we can count on our governments to do the one thing they're actually quite effective at -- taking money so that they can spend it. If we consider, for example, how government spending in many parts of the world is increasing (despite the "austerity" positioning of many new initiatives) along with the ease and popularity of existing and potentially new VAT programs, it's likely the taxing (and protecting) will only get worse.

Consider recent Senate Bill number 3816, which attempts to raise taxes on businesses with operations outside of the US, while also offering a bounty on the heads of foreign workers (i.e., as part of the legislation "This bill would give companies a two-year payroll tax holiday, reducing the amount of Social Security taxes they would have to pay, for new employees who replace workers doing similar jobs overseas."). But pointing a bullet at the head of Atul in Bangalore or Jose in Mexico is not the worst of it. Oh no -- the bill also looks to raise additional tax dollars by penalizing businesses that operate globally.

According to the Shopfloor blog, the bill would hurt US jobs in the long-run, despite its intentions (while also driving up taxes for those doing business offshore). To wit, as one Senator put it in criticizing the bill: "A U.S. parent company could have foreign subsidiaries engaged in manufacturing parts that are shipped back to the U.S. parent" as a result of the legislation but in addition to encouraging "the company to repatriate the parts production ... it's just as easy to imagine that this bill would encourage the company to expatriate the assembly jobs."

Honestly, we view this bill -- and those like it -- as new taxes on global operations and the global sourcing and allocation of jobs and talent. Yet there are ways of fighting back and taking pre-emptive moves to lower your overall global sourcing tax burden by optimizing your supply chain for total cost. Stay tuned for Part 2 of this post as we examine a few of these options in more detail.

Jason Busch

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