Technology and data advances and how they are evolving the manufacturing supply chain
Technological advances and data capture trends in the manufacturing sector are rapidly shifting the tax planning of global companies. Current issues relate to technologically driven effects on the management of global supply chains, including the management of intangible property, and the interaction of these trends with the future of international tax, BEPS in particular. These topics were of considerable discussion and debate today at the Taxand Global Conference in Milan.
Fast paced technological advances have highlighted three emerging trends which will have significant effects on the tax planning around company supply chains. Whilst all three have been discussed separately, ultimately they’re all intrinsically linked; ‘Next’ or ‘Near’-Shoring, 3D printing (or ‘Active Manufacturing’); and SMAC Stack.
Near-Shoring isn’t a new phenomenon, the trend of moving manufacturing out of traditional low cost jurisdiction, back to the ultimate markets where customers are located is taking hold slowly on a company by company basis. However, with consumer demand requiring companies to be more fleet of foot and generating ever more personalised products and delivering them ever more quickly, the trend has become more prevalent, as shaving weeks off cycle times makes a huge difference in today's fast and furious supply chains.
Over the past few years, resources in traditional offshore locations like India, China and Eastern Europe have increased in cost, significantly impacting the value benefits of the supply chain. Whilst the ‘new’ location will ultimately be dependent on many factors including skilled labour availability and infrastructure, the tax environment will also be considered. But with the implementation of BEPS just around the corner, which countries will become attractive is a question of considerable debate.
SMAC (Social, Mobile, Analytics, Cloud) Stack and 3D printing have the ability to converge. More and more data is becoming available to companies and if data around trends and buying patterns and the manufacturing plants that make the products are in the same location as customers, then that gives the company a huge advantage in serving their local market. It also serves to change the dynamics of the traditional supply chain where each entity had a specific function, blurring the lines from a tax planning perspective.
Another impact of SMAC is on shared service centres, which have always been considered back office cost centres as they’re not a value add function. However, with automation and the data capture available, the service centre is evolving to become a value add analytics shops for multinationals. As a result, companies now have a way to get ‘substance’ into these places where it didn’t exist before which, given the focus on substance through the BEPS initiative, provides greater flexibility of viewing substance in the supply chains.
Left unaddressed, these trends will lead to the manufacturer driving more value in a supply chain, and hence taxable income.
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With the emergence of these trends in manufacturing, multinationals should remember:
- The supply chain is becoming less linear – IP no longer sits with a single player and value creation can happen throughout the chain
- Consumer preferences, and the market’s ability to respond, disrupts traditional tax planning
- Supply chain reaction to changes in manufacturing must be considered through the lens of BEPS actions.
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