Multinational Tax Planning for Supply Chain Facilities
Supply chain managers responsible for locating global operating facilities are familiar with the transportation and pipeline inventory costs that threaten expected savings in labor and production. But they are much less comfortable with the tax issues that affect decisions about facility location. This article sheds light on three of the most important: the foreign tax credit, tax deferral and transfer pricing.
The Obama administration, in its last two budgets, has proposed changes in the tax laws that would increase tax burdens on corporations that have operations in foreign jurisdictions. So far the U.S. business community has successfully resisted these proposals, but the pressure is certain to continue. At the same time, business executives and policymakers believe that measures such as lower corporate tax rates are needed to make the United States more competitive in global markets. Thus, current and proposed taxation of international transactions plays an important role in where multinational organizations chose to locate their operations.
Although most supply chain managers have become increasingly familiar with the transportation and pipeline inventory costs that threaten the savings expected from overseas facilities, they are less comfortable with the tax issues that pertain to international transactions. Proper attention to these issues can potentially increase the profitability of multinational organizations.
The objective of this article is to give supply chain managers a basic understanding of the fundamental tax ramifications of international location decisions and to provide a framework for assessing proposed changes put forth by the Obama administration. The complex nature of the tax law precludes a detailed analysis in this article. Therefore, we have opted to focus on three of the most influential factors: the foreign tax credit, the potential deferral of U.S. taxation on foreign earnings, and transfer pricing between related entities in different tax jurisdictions.
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The Obama administration, in its last two budgets, has proposed changes in the tax laws that would increase tax burdens on corporations that have operations in foreign jurisdictions. So far the U.S. business community has successfully resisted these proposals, but the pressure is certain to continue. At the same time, business executives and policymakers believe that measures such as lower corporate tax rates are needed to make the United States more competitive in global markets. Thus, current and proposed taxation of international transactions plays an important role in where multinational organizations chose to locate their operations.
Although most supply chain managers have become increasingly familiar with the transportation and pipeline inventory costs that threaten the savings expected from overseas facilities, they are less comfortable with the tax issues that pertain to international transactions. Proper attention to these issues can potentially increase the profitability of multinational organizations.
The objective of this article is to give supply chain managers a basic understanding of the fundamental tax ramifications of international location decisions and to provide a framework for assessing proposed changes put forth by the Obama administration. The complex nature of the tax law precludes a detailed analysis in this article. Therefore, we have opted to focus on three of the most influential factors: the foreign tax credit, the potential deferral of U.S. taxation on foreign earnings, and transfer pricing between related entities in different tax jurisdictions.
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