Tax Efficient Supply Chain Management Services

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TA X

AS I A PAC I F I C

Tax Efficient Supply Chain Management Services

Helping Global Companies

Achieve Enterprise-wide

Efficiencies

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© 2008 KPMG International. KPMG International is a Swiss cooperative. Member fi rms of the KPMG network of independent fi rms are affi liated with KPMG International. KPMG International provides no client services. No member fi rm has any authority to obligate or bind KPMG International or any other member fi rm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member fi rm. All rights reserved.

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Conquering today’s supply chain challenges

Companies are expanding their supply chains across the globe, seeking new markets and capturing cost efficiencies.

Yet with every new link forged in a supply chain there are new operating costs to consider.

Leading companies recognise that comprehensive tax planning across their supply chain structure can open up opportunities to drive global cost savings and mitigate risks. A comprehensive approach is needed that identifies all supply chain costs, including taxes.

KPMG’s Tax Efficient Supply Chain

Management (TESCM) services can help.

© 2008 KPMG International. KPMG International is a Swiss cooperative. Member fi rms of the KPMG network of independent fi rms are affi liated with KPMG International. KPMG International provides no client services. No member fi rm has any authority to obligate or bind KPMG International or any other member fi rm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or

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2 Tax Efficient Supply Chain Management Services

At KPMG, we understand the importance of aligning tax and business considerations across the supply chain. Our broad experience enables us to work with companies to evaluate, design and implement changes to their supply chains that integrate tax with business objectives.

The benefits can be significant, including realisation of tax- enhanced operational benefits, integrated operations and business models, and an overall reduced risk profile.

“We live in a world of highly interdependent markets for goods, services, finance, labour, and ideas. When we measure economies on a comparable global scale, the growing clout of developing countries comes into sharp relief.”

- Alan Gelb - the Acting World Bank Chief Economist and Senior Vice President for Development Economics.

International Trade Outpaces Economic Growth 300

2000

Source: EIU data combines the total from Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Philippines, Singapore, South Korea

0

Exports Imports Nominal GDP (US$ at PPP) 2001 2002 2003 2004 2005 2006 2007 2008 50

100 150 200 250

According to the 2008 World Development Indicators issued by the World Bank, developing economies now account for 41 percent of the world’s output, up from 36 percent in 2000.

The growth in trade from Asian countries have been particularly relevant and continues to outpace overall economic growth. These trends also reflect the increasing integration of the global market and the opportunities created by looking beyond one’s own borders.

Facing new global complexities

A growing number of companies are turning to global markets to expand. Competition is driving many companies that historically

have focused on the domestic market to globalise and find new, low-cost supply sources. For example:

• Enterprises with manufacturing operations in Asia are now also looking to source from new locations within the region in order to manage country-specific risks and take advantage of lower cost production facilities.

• Asian companies are expanding rapidly into new markets and reaching new clients around the globe.

• Multinational enterprises are competing for a share of Asia’s fast-growing Asian consumer markets.

Source: Press Release 2008/265/DEC – World Bank

Foreign Direct Investment (FDI)/Gross Domestic Product (GDP) versus headline domestic Corporate Income Tax rates

Source: FITA, EIU Attractive corporate income tax rates can be a driver to stimulate foreign direct investment into an economy.

Note: This chart does not include other national and/or local taxation (or tax incentives) that could impact the overall effective income tax rate, for example the application of local business taxes, surcharges and taxes on distribution.

0.00%

15.00% 20.00% 25.00% 30.00% 35.00%

Corporate Income Tax Rate

FDI/GDP

Hong Kong Singapore

China Taiwan South Korea

Vietnam

Malaysia Thailand New Zealand India Indonesia Japan

Australia Philippines 2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

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Tax Efficient Supply Chain Management Services 3

Such extensions of the supply chain create many new complexities, for example in a company’s human resources, legal, tax, IT, marketing, R&D, and finance functions. Integrating tax and supply chain planning is one way that successful companies can turn these complexities to their advantage.

Taking a proactive approach The first step in effective, proactive planning is to recognize the central role that the tax function can play and the value it can bring to global supply chain planning. It is important to understand that tax concerns need to be considered before any changes are made to a supply chain.

The largest opportunities often arise due to related fundamental changes in business models and supply chains as a result of:

• Mergers or acquisitions and post-acquisition operational integration

• Corporate restructurings

• Significant new plant

developments, expansions, and capital expenditures

• R&D spending and technology breakthroughs

• Centralisation of functions, risks, and other activities.

Identifying and being in a position to address opportunities arising from these kinds of changes requires the proactive involvement and early integration of the tax function into the process.

It is imperative, however, that companies looking into developing cost-efficient business models and supply chains institute a culture of cross-functional collaboration and proactive planning. This can be achieved by clear leadership and communication from the board and executive committee.

We understand the issues Understanding the range of tax issues is critical to cost-effective supply chain management.

Modern supply chains can cut across many tax and regulatory environments. Successfully managing the issues in these different jurisdictions requires not only understanding but also the ability to shape the supply chains to meet the total business objectives.

KPMG’s TESCM professionals offer extensive global tax knowledge and industry experience, and a proactive, cross-functional approach.

KPMG’s TESCM professionals can help to:

• Perform supply chain location analysis, considering key decision criteria and issues such as labor costs, infrastructure, and framework

• Address demand and supply variability through inventory positioning and valuation analysis

• Perform total cost analysis (from manufacturing to the customer) and distribution scenario analysis

• Manage customs compliance and identify opportunities to manage indirect tax issues to improve cash flows and meet compliance requirements

• Prepare transfer pricing documentation

• Reduce duty costs and improve cross-border movements with various customs programs such as free trade agreements, customs unions and free/

foreign trade zones

• Develop operating structures, including procurement, manufacturing and distribution to help managing total landed costs of goods

• Identify opportunities for incentive packages, for example income tax and other credits in the local jurisdiction

• Assess the beneﬁ ts and facilitate planning, analysis, and implementation of shared service centres.

Business Performance Management Issues:

• Global sourcing

• Contract manufacturing

• Shared services

• Process efficiencies

• Cost optimisation

• Capacity management

• Distribution network management

• Freight and logistics

• Sales and distribution

Tax Considerations:

• Asset dispositions

• Transfer pricing

• Profit repatriation

• Customs and trade zones

• Location of taxable events

• Indirect taxes

• Permanent

establishment issues

• Local taxation

• Incentives (corporate/individual)

TESCM

© 2008 KPMG International. KPMG International is a Swiss cooperative. Member fi rms of the KPMG network of independent fi rms are affi liated with KPMG International. KPMG International provides no client services. No member fi rm has any authority to obligate or bind KPMG International or any other member

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4 Tax Efficient Supply Chain Management Services

The cornerstones of effective integration

A number of factors, or cornerstones, must be in place for effective integration to be achieved. At KPMG we call these factors the “CAPE”

cornerstones:

•

C

ommunicate: Tax and operations departments need to speak with one another consistently to ensure that each side’s constraints are understood and common ground is identified.

•

A

nalyse: It is one thing to know the current status of the business and the compliance requirements of various tax jurisdictions. It’s another to stay on top of planned business changes, pending legislation, and changing economic conditions across multiple tax jurisdictions.

•

P

lan: After analysing a desirable jurisdiction, it is up to the supply chain management team, including tax members, to plan for the future state- of-being when the company adopts a new structure.

•

E

xecute: The operations and tax teams have come together and forged a plan to overcome issues. Now it is time to implement plans and galvanise the new structure.

We bring global

understanding and cross- functional experience Having the right approach will not achieve the expected benefits if one does not have the right experience to implement it.

That’s where KPMG’s TESCM team can help. Our cross- functional teams provide project management experience to develop and implement the right solutions for each client.

We draw upon the resources of KPMG member firms, including professionals in Tax and Advisory Services and those with industry- specific experience.

KPMG member firms can deliver a consistency of services through their ability to:

• Bring together professionals with tax and operational experience from around the world

• Provide thought leadership on leading practices

• Map out tax-efficient supply chain structures

• Facilitate internal discussions

• Provide project management experience

• Assist in plan implementation.

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’ Contact Us

For more information on how KPMG’s Tax Efficient Supply Chain Management services can help your organisation, contact your local KPMG adviser or:

Chris Abbiss

Principal and Regional Leader, TESCM

[email protected] Dick Nijdam

Asia Pacific Regional Tax Director, TESCM

[email protected] KPMG

8th Floor, Prince s Building 10 Chater Road

Central, Hong Kong Tel: +852 2522 6022 Fax: +852 2845 2588

© 2008 KPMG International. KPMG International is a Swiss cooperative. Member fi rms of the KPMG network of independent fi rms are affi liated with KPMG International. KPMG International provides no client services. No member fi rm has any authority to obligate or bind KPMG International or any other member

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kpmg.com

Australia 10 Shelley Street Sydney NSW 2000 Australia

Tel: +61 (2) 9335 7000 China

8th Floor, Tower E2 Oriental Plaza

1 East Chang An Avenue Beijing 100738

China

Tel: +86 (10) 8508 5000 Hong Kong SAR 8th Floor, Prince s Building 10 Chater Road

Central Hong Kong

Tel: +852 2522 6022 Indonesia

35th Floor WISMA GKBI 28, JI. Jenderal Sudirman Jakarta 10210

Indonesia

Tel: +62 (21) 574 2333 Japan

Izumi Garden Tower 1-6-1 Roppongi Minato-ku Tokyo 106-6012 Japan

Tel: +81 (3) 6229-8000

Korea

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737 Yeoksam-dong Kangnam-gu Seoul 135-984 Republic of Korea Tel: +82 (2) 2112 0001 Malaysia

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Tel: + 60 (3) 7721 3388 New Zealand

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New Zealand Tel: +64 (9) 367 5800 Philippines

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Philippines

Tel: +63 (2) 885 7000 Singapore

16 Raffles Quay #22-00 Hong Leong Building Singapore 048581 Singapore Tel: +65 6213 3388

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future.

No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. The views and opinions are those of the author and do not necessarily represent the views and opinions of KPMG International or its member ﬁ rms. All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity.

Taiwan

68th Floor, Taipei 101 Tower No.7, Sec. 5, Xinyi Road Taipei 11049

Taiwan, R.O.C.

Tel: +886 (2) 8101 6666 Thailand

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Tel: +66 (0) 2677 2000 Vietnam

10th Floor, Sun Wah Tower 115 Nguyen Hue

District 1 Ho Chi Minh City Vietnam

Tel: +84 (8) 821 9266

Member fi rms of the KPMG network of independent fi rms are affi liated with KPMG International. KPMG International provides no client services. No member fi rm has any authority to obligate or bind KPMG International or any other member fi rm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member fi rm. All rights reserved. Printed in Hong Kong.

KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.

Publication date: September 2008