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Supply Chain Planning: Narrowing The Gap Between Tax And The Boardroom
Tax Efficient Supply Chain Management (TESCM) has steadily raised the profile of Tax Directors within multinationals. Taxand UK looks at the reason for this and explores TESCM in greater detail.
It has been known that Tax Directors often bemoan the fact that they are given very little face-to-face time with their boards and have earned a somewhat negative image as "boffins" who converse in tax technical language and analyse huge amounts of tax legislation. Such unfair stereotyping of tax professionals is now a thing of the past, with the role of Tax Directors undergoing a significant transformation. Not only do they no longer need to wait for an invitation to the boardroom and are ready to wax lyrical about the next revenue-busting idea.Supply Chain Planning, is very much responsible for this change in image.
Tax Directors have recognised that in order to succeed and drive value for the shareholders, it is essential to integrate with the business and adapt quickly to business model changes.Supply Chain Planning is known in the market in various guises that include Tax Efficient Supply Chain Management (TESCM) and Value Chain Planning. The basic premise lies in the centralisation of functions, assets and risks. As multinationals seek to become more global or regional, adopting a business model that involves centralising key functions, assets and risks drive costs out of the business, while simultaneously creating operating efficiencies. All in all, the tax function is pivotal when implementing business model changes and, importantly, ensuring that the robustness of the operating model is safeguarded when challenged by tax authorities.
While TESCM is not a new phenomenon, it remains in relative infancy in the UK when compared to the US. Also, the early adopters (from the late 1990s) were predominantly in the consumer goods sector. As the market has become more aware of the benefits, typically through competitive pressure or post-merger integration, most sectors (e.g., telecoms, ENR, pharma) have now embraced TESCM.The state of the global economy has undoubtedly raised the profile of TESCM with boards of directors and tax authorities alike. Multinationals are under increasing pressure to maximise shareholder return, while governments are under increasing pressure to maintain their revenue base.
TESCM has put tax truly in the boardroom, creating operational efficiency and achieving a sustainable reduction in the effective tax rate. The result is that today's Tax Director faces greater challenges than ever before - transfer pricing disputes, exit charge negotiations, PE analysis, designing the optimal business model, reconfiguring business processes and IT design, and even determining from where the business should be run. Fortunately, the transformation from "boffin" to business strategist is complete.
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Also published in Financial Director, July 2011