Logistikk og juss: Utfordringer i internasjonella forsyningskjeder. Logistikk-dagen 2011 Østfold,

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Tabitha Williams
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1 Logistikk og juss: Utfordringer i internasjonella forsyningskjeder Logistikk-dagen 2011 Østfold, Professor Andreas Norrman Dept of Industrial Management and Logistics Lund University, Faculty of Engineering Sweden

2 Action oriented principles for logistics drives e.g. structural changes in networks Göran Persson s 9 Principles Reduce or Redistribute Lead time Reduce or Adopt to Uncertainties Redistribute or Increase frequencies Eliminate or Adopt to Expected Pattern of Demand Simplify structures, systems and Differentiate Postpone Improve Information and Decision Support System Strengthen Internal and External Integration processes

3 Lawyers have another process orientation than logisticians

4 Logisticians and lawyers two different kind of domains: to point out some challenges and frictions between the two domains to discuss the other domain s point of departure and guiding principles

5 Illustration: Is Drop shipment a feasible solution? Scenario 1 Scenario 2 High Corp HQ Contract Owner Sweden US High Corp HQ Contract Owner C C Sweden US Supplier CustCo Supplier CustCo Material/goods flow Payment flow Change of ownership Invoice flow Two cross Atlantic transports reduced total cost (sales tax higher than extra transport cost) but is from environmental and logistics perspective questionable

6 Case illustrations: American Reroute company s solution Scenario 1 Scenario 2 High Corp HQ Contract Owner Sweden US High Corp HQ Contract Owner C C Sweden US Supplier CustCo Supplier CustCo Sales taxes are not VATs imperfections of consumption tax system Scenario 3 High Corp HQ Contract Owner Sweden US Supplier CustCo American Hub Mexico

7 Aligning and integrating Supply chain and Tax decision could have great benefits. 100% 80% 60% 40% 20% 0% Operations only (40%) Tax only (10%) Integrated approach (87%) The benefits of integrating supply chain & tax (Source: Deloitte 2005, referring to Keller International)

8 To redesign logistics structures without fiscal knowledge might create problems a multinational company located a new distribution centre in Germany, and realised only after the facility was built that Germany s corporate tax rates eliminated most of the operational savings (Sweeney, 1998)

9 ... And penalties are high if you do it wrong Seller FR Direct Delivery Customer FR Invoice Order Seller SE Order Invoice Order Seller in Sweden is not registred for VAT in France, selling without VAT Penalties as high as the missed VAT payments Exemple Sales: Euro VAT(19,6%): Euro (normally refundable) Penalty: Euro

10 What would you do based on your Logistics localization knowledge When Japan and China have grown to your major markets in this region would you move your regional DC (distribution centre) to China? If you need a regional DC for Middle East in which country would you probably locate it from a logistics point of view?

11 Illustration: The company hesitates to move the spare part stock from Singapore to China due to VAT-costs when re-exporting. Centralised regional spare part stock in Singapore & major market in Japan. Expects growth in China, and move stock there.. VAT on all import to China Not all VAT refundable when re-exporting -> extra cost China hence not good location for only central stock in the region...

12 Illustration: Postponement and centralization not always possibly Foreign company must show invoice to final customer to be able to export to Saudi Arabia. Ship without customer if not sold at arrival warehouse in harbour and pay penalties Saudi Arabia has laws against re-export Not suitable for regional warehouse Difficult handle returns

13 Illustration: Legal rules contradicts principles No tracking of Point of Origin Tracking of Point of origin Situation Standardized articles Multipe sourcing (countries or suppliers) Reduce demand uncertainty and safety stock by having one joint article number (SKU) 1 article (SKU) 6 articles (SKU) Problem Tracking of Point of Origin contradicts logistics principles Increases tied up capital Increases administration

14 Illustration Customs: Example product classes Different VAT and customs classes for different goods in different countries. E.g. software & hardware How a product is packaged and distributed impact tax and customs... Example of combined product: HW: millions, 12% customs HW: 100 millions (12%), SW: 900 millions (0%), CD value1$ (CD is HW (12%))

15 Logisticians and lawyers two different kind of domains: to point out some challenges and frictions between the two domains to discuss the other domain s point of departure and guiding principles,

16 Discussion of challenges between the domains (1) Legal system Conservatism Foreseeable, equally, certainty, simplicity etc Business/Logistics system Innovativeness Compete through innovation, segmentation (inequality) etc Solving disputes Provides arena and rules Ex-post contract focus, useable in court Creating cooperation Collaborative behaviour Ex-ante contract focus, develops routines, incentives etc

17 Discussion of challenges between the domains (2) Legal system Focusing on firms Independent firms Two parties Arm-lengths principle National perspective Legal systems are national (few exceptions) Protect national tax base Business/Logistics system Focusing on integrated processes/flows Chain/network perspective Integrate, collaborate, synchronize Improve ICT Global perspective Business is global Optimise tax for the company Professions separated by culture, preconceived ideas and paradigms

18 Concluding remarks Little interaction in research between the domains Recently growing interest from consultants/advisors Increase mutual knowledge about other domain s point of departure understand general challenges Increase mutual knowledge about other domain s actionoriented principles and where frictions could be expected Develop and implement joint policies and guidelines regarding e.g. physical and financial flows combined with tax Develop tools useful for joint interaction and analysis Support policy discussions to get laws and regulations coherent but also adopted to development and innovation

19 Questions? Ask a lawyer - but have knowledge enough to find the issues - and map them together!

21 Combining framework 1. Do a Logistics mapping of networks & flows Overview of real life s complex structures, processes & flows Platform for decision making Detailed data added on nodes and links: time, locations, value, volumes, frequencies, distances, uncertainties etc Value adding unit Logistics system Warehouse Material/goods flow Information flow Payment flow

22 Combining framework 2. Tax Lawyers information need for analysis Fiscal system Indirect taxes, VAT Direct taxes, CIT Indirect taxes, VAT WHAT kind of transaction WHO are buyers/sellers WHAT route do products take WHERE do transport begin and end WHAT territory is delivery in Customs Direct taxes, CIT WHAT kind of product WHO is the tax subject WHAT type of relationship WHERE in which country is the activity carried out WHERE country of residences Customs WHO is importing WHAT type of product WHERE is its origin

23 Combining framework 3. Combined framework for logistics and fiscal mapping Physical constructs Material/goods flow Value adding unit Abstract constructs Payment flow Invoice flow Change of ownership C Warehouse Service flow Internal border; within Customs union External border of a country or trade union Customs procedures Information flow Legal person Permanent establishment for CIT purposes VAT registration Free trade area / customs warehouse

MFFA Belastingadvies Tax Advice

MFFA Belastingadvies Tax Advice Specialized in Expats and International Companies Amsterdam Zwolle Assen The Netherlands VAT in Europe an introduction General comments European Union: 27 member states