Tax planning remains a vital component of optimal supply chain restructuring

As more companies re-“evaluate” their current supply chain models and controls to enhance operational efficiency in the post-COVID global economy, the integration of tax planning and modelling have now become indispensable. When considering restructuring supply chain models to align with new global realities, traditional factors like costs, sourcing, manufacturing, warehousing, transportation bottlenecks and other risks need to be re-examined and the value chain analysis enhanced. It's important to consider input from tax leaders on the regional and local tax implications of sourcing and delivery from new suppliers in different regions and countries, as well as the cost-benefits potential for onshoring or reshoring. 

While supply chain woes have eased lately, amplified risks remain. Supply chains are being transformed in response to diverse disruptions, both foreseeable and unforeseeable, including geopolitical and economic strife, natural disasters, currency fluctuations, port-access logjams, transportation glitches, inflationary pressures and even new ESG disclosure and reporting obligations, among others. This strategic repositioning explains why we’re hearing so much about near-shoring, re-shoring, friend-shoring and on-shoring. This is also why C-suite executives and other business leaders should be aware of the tax liability and compliance implications of establishing new supply sources, logistics networks, or warehouses in different countries, states and localities, each with its own set of indirect tax rules and rates. Consequently, traditional supply chain management models will need to be enhanced or replaced with more agile and efficient digital networks driven by real-time information, repositioning and data analytics. Powered by digital technologies, including AI, these models offer the tactical flexibility needed to adapt quickly to changing conditions.  

When new supply chain networks are restructured, indirect tax professionals should identify the tax liabilities and value associated with various sourcing options. The optimisation of supply chain functionality, flows and performance through jurisdictional and regional tax planning, combined with technical tax modelling strategies, can reduce costs and manage risks effectively. During these planning discussions, tax leaders can better educate their colleagues about global tax compliance challenges and issues that warrant their attention. 

Fortunately, business leaders and operational teams are likely to be more receptive to this type of tax-planning input today compared to just a few years ago. That’s because supply chain management strategies are undergoing a critical digital transformation.  

According to a report by Protiviti on supply chain risk management, prioritising cost-efficiency over other factors in sourcing, which has been the main supply chain management strategy for several decades, can end up costing organisations more in the long run. This is due to disruptions, additional costs, decreased revenue, unhappy customers and a decline in profitability. 

These negative outcomes occur more frequently when single-source supplier strategies, just-in-time manufacturing and other lean practices collide with 21st-century geopolitical, weather and regulatory risks. A “cost-dominant approach to supply chain risk management tends to neglect or, at the very least, short-change the significant value derived from designing and operating more reliable and responsive supply chains,” according to Protiviti, which advocates a supply chain management strategy that evaluates the total costs and risks associated with suppliers, networks and regions. 

Accordingly, these holistic and enhanced considerations of supply chain restructuring, investment, costs, risks and performance should properly address the overall tax obligations and liabilities. 

Indirect tax leaders can provide valuable contributions to supply chain planning and management sessions when they are equipped with data-driven insights into the tax-related pros and cons of buying and selling in different countries, regions, states and cities.  Given today’s global rugged landscape, efficiency can be achieved through continual digital and tactical enhancements, transforming supply chains into innovative and valuable structures.