Beyond purchasing

Taxing challenges | Section IV 29
Key findings:
• Although tax concerns vary by
company, half of respondents see
customs duties as a major issue
for procurement.
• Tax barriers are a serious consideration
when planning procurement strategy.
• However, only one in three
respondents has been successful in
reducing the tax burden on purchasing.
Such companies, however, are in the
minority. In our survey, half agree that
customs duties and compliance are
major issues which they actively
manage, against 14 percent which do
not. Even more (55 percent) structure
their procurement operations to take
account of direct and indirect taxes,
and 45 percent find that tax issues
complicate internal company transfer
pricing. One Asia­based executive
interviewed noted that, “Tax is the
biggest barrier for the free movement
of goods. A duty of 10 percent kills
regional sourcing.”
It is therefore surprising that in the
survey only a third of respondents
report success in reducing their overall
tax burden by structuring their
international procurement activities in
a tax­efficient manner. Moreover, just
9 percent say that they have
implemented tax­efficient procurement
structures, although a further 18
percent are currently doing so and 26
percent are considering them. A
broader, executive­level understanding
of tax­related opportunities associated
with procurement would likely
stimulate more interest in these types
of initiatives.
Simply comparing how many
respondents consider this a major
issue and how few have had success
in the area shows that a notable
number of companies have room to
improve here. The gains can be
dramatic. Connelly estimates that
roughly “30 percent of the benefit
of going offshore is in tax/currency
considerations. It is hugely important
to us.” He also recalls that a previous
company for which he worked saved
$40 million a year simply by
procurement structuring its purchases
in a tax­efficient manner. Byrne adds
another advantage of focusing here:
“in many ways, it is the easiest thing
to do because it is a relatively painless
win. It does not hurt your suppliers.”
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