Tax Optimization Meets Supply Chain and Procurement

In the past week on Spend Matters, we featured a three-part series exploring the basics behind procurement, tax and transfer pricing strategies and benefits based on commentary by PWC at the SIG event. You can read them here:

Key Procurement Takeaways From KPMG’s 2013 Global Manufacturing Outlook

Transactional Data Interchange: The Large/Small Company Disconnect

A Manufacturing Travesty: The Procurement Blind Leading the Blind


I was reminded of this series when I read a short feature in KPMG’s 2013 Global Manufacturing Outlook on the same topic. KPMG frames the topic in their analysis by noting that “most multinational manufacturers are currently struggling to ‘triangulate’ their supply chain to achieve end-to-end visibility among customers, suppliers, partners and intragroup entities. This is not just about improving ERP systems or other ICT elements; it also requires organizations to carefully plan and monitor the division of roles, risks and tangible and intangible assets amongst the group.”

In other words, those “intangible assets” combined with the complexity of cross-border regulations and taxation can create significant opportunities for profit improvement based on decisions and activities that do nothing to otherwise improve a company’s business standing (i.e., they are a reaction to government policy versus a reflection of the invisible hand). KPMG further notes that companies have often “prioritized the ability to achieve operational cost savings and improved control while also optimizing tax (and, in some cases, creating a tax saving), particularly in areas such as asset, risk and function location- selection… but few seem to pay close enough attention to the longer-term transfer pricing picture.”

The opportunity, of course, for taking advantage of the location of various global operations (and decisions pertaining to supply chain activities), not to mention the physical movement of goods across borders and entities, is significant. Unfortunately, it’s all too often smaller businesses that come up on the short end of the procurement tax minimization stick. Yet tactics can apply to companies of all sizes.

In concluding their thoughts on the topic, KPMG suggests that companies should “consider the impact of tax in optimizing a company’s overall value chain (including situations where post-merger integration may be impacted).”

That’s an understated way of saying “you’d be stupid to pay more than you have to.”

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