When it Comes to Total Cost, Don’t Ignore Government’s Taxing Role (Part 2)

In the first post in this series, I looked at one example of a potential new government tax on companies doing business globally (and buying globally for their operations). I suspect there will be many more of these in the works (e.g., a US VAT) given the level of indebtedness the nation currently faces (the same could be said for many countries in Europe as well). But is it possible to fight back proactively, pre-empting potential negative tax ramifications on the business from our governments' eagerness to tax businesses as a means of reducing national deficits while continuing to line the bureaucrats' coffers? You bet.

There are a number of tax-advantaged procurement strategies that companies should be thinking of. I'll quickly touch on a few here:

  1. Physical location of procurement companies and organizations -- one need look no further than Vodafone's procurement "company" based in Luxembourg to peer under the covers of an organization at a material overall tax advantage relative to other rivals. Think through tax advantaged locations to locate key human resources, facilities and distribution hubs.
  2. Don't pay too much VAT -- and when you do, ask for it back. VAT reclamation strategies (e.g., reclaiming paid VAT for hotel nights in the UK for non-EU citizen) based on travel, P-Card and other data can help offset rising tax costs in different areas. It's amazing what you can unearth by knowing enough about VAT reclamations opportunities and how to drill into your spending data to find them.
  3. Look at tax planning and transfer pricing opportunities and analyses closely. See exhibit 4 in this Supply Chain Management Review article for an example of opportunities from transfer price analysis.

There are dozens of other ways to avoid paying the taxman too much by looking closely at areas such as make/buy analysis (where input costs such as raw materials maybe subject to different tariffs than the export of a finished product). Even on a domestic basis, regional tax breaks involving site and geography selection for facilities can play a role. But regardless of where you start, don't discount the opportunity to leverage your spend to pay the government less.

Jason Busch

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