Before companies redesign their supply chains, they need to stop and consider what impact those changes will have on corporate taxes, warns the consulting firm Tompkins Associates in a new report, "Leveraging the Supply Chain for Increased Shareholder Value."
In some cases, a change in the makeup of a supply chain could actually increase a company's Effective Tax Rate (ETR), which is the sum of all taxes for income, property, customs, sales, energy and the environment. The ETR varies widely from country to country.
In particular, when international companies design their supply chains they need to be sure to factor in taxes in order to avoid any unforeseen costs. A supply chain manager could think he or she was optimizing a global network by choosing new locations for production and distribution, only to discover that tax rates and incentives invalidate the plan. "For companies that operate on an international scale and are subject to a larger variety of taxes, their supply chain design can significantly increase or decrease their ETR," said Gene Tyndall, an executive vice president with Tompkins Associates.
Additional information on the impact that taxes considerations could have on where companies locate their supply chain operations can be found in the article "The tax factor in global site selection" from the Q1/2010 issue of CSCMP's Supply Chain Quarterly.