2016 Luxury & Fashion Industry Conference for Multinationals - Singapore 23 February 2016 9:00 am 1:00 pm The St. Regis Singapore
2016 Luxury & Fashion Industry Conference for Multinationals - Singapore Supply Chain Issues in ASEAN / TPP / FTA Eugene Lim, Baker & McKenzie.Wong & Leow Jaclyn Ho, Baker & McKenzie.Wong & Leow
Supply chain issues in ASEAN
Optimising the Supply Chain Integral part of businesses Competition is driving businesses to be more efficient in their supply chain operations Custom duties and indirect tax savings are low hanging fruits to achieve such cost savings
From Catwalk to Customer Design Manufacture and source Transport and logistics Warehouse operations Distribute / Sell
Supply Chain - Basic Building Blocks 1. Customs duties 2. Excise duties 3. Indirect taxes 4. Permanent establishment 5. Transfer pricing 6. Incoterms
Regional Distribution Company Headquarters / IP Company (e.g., U.S., Europe) Manufacturers (e.g., Europe, China, ASEAN) IP License Raw materials Finished goods Regional Distribution Company Raw materials Finished goods Suppliers (e.g., various locations) Distributors / Retail stores (e.g., various Asia Pacific locations) Finished goods Customers (e.g., various Asia Pacific locations)
Supply Chain Planning Considerations 1. Location of Regional Distribution Company Singapore vs. Hong Kong Regional distribution companies can be essential in supporting large-scale retail and direct-to-consumer operations Properly implemented, regional distribution companies enable shorter retail and direct-toconsumer fulfilment cycles while maximising duty and tax efficiencies Involves (i) tax planning; (ii) customs duty and free trade agreement ( FTA ) planning; and (iii) general operating expense concerns Singapore Generally duty-free for most consumer goods A Singapore regional distribution company may enable FTA benefits in Asia. Other considerations: Substantial investment and long-term commitment for tax and investment incentives, high rental and labour costs Hong Kong Generally duty-free and no has no VAT Proximity to Southern China makes most inbound movement cost-effective Storage in HK distribution centre disqualifies products from ASEAN FTA preferences. Other considerations: Hong Kong profits tax, FTA qualifications, high rental and labour costs
Supply Chain Planning Considerations 2. Transfer Pricing Principle guiding transactions between associated entities is that the transactions must be at arm s length. Generally, profits follow ownership of functions, assets and risks 3. Customs and Duties Interaction between Asean Economic Community ( AEC ), Trans Pacific Partnership Agreement ( TPP ) and FTAs Bonded contract manufacturing regimes to defer custom duties, excise duties and import GST How the IP structured may substantially impact indirect tax and customs duty liabilities
Supply Chain Planning Considerations 4. Manufacturing arrangements Contract manufacturing structures Turnkey Toll Raw materials (sale) Principal Manufacturing Co. Finished goods (purchase) Buy-sell relationship Manufacturing Co. bears risk of loss of inventory Availability of bonded manufacturing arrangements to defer custom duties and import GST Treatment of locallysourced raw materials and local sales of finished goods Raw materials (consign) Principal Finished goods (return) Manufacturing Co. Tolling fee Consignment relationship Principal bears risk of loss of inventory Availability of bonded manufacturing arrangements Treatment of locallysourced raw materials and local sales of finished goods Applicability of GST on tolling fee
Supply Chain Planning Considerations 5. Distribution arrangements Multi-channel retail Retail distribution / Wholesale distribution / Licensee distribution
E-Commerce Brand s Own Website Market Place Manufacturing Co. / Regional Distribution Co. Manufacturing Co. / Regional Distribution Co. (registered dealer on platform) 1. Listing of goods on website 2. Delivery of goods Website of brand owner 1. Order and payment made online 4. Delivery of goods 5. Net amount remitted after deducting service fee 3. Informs dealer of order E- Commerce platform 2. Order and payment made online Customer Customer
E-Commerce Tax Considerations 1. Which entity will make the sale? To which entities are profits attributable? 2. Reverse-charge mechanism 3. Permanent establishment issues 4. Double taxation issues and the applicability of foreign tax credits 5. 6. Transfer pricing VAT registration issues who is the supplier of services and who is liable for compliance? 7. Customs value impact
Q & A
2016 Luxury & Fashion Industry Conference for Multinationals - Singapore 23 February 2016 The St. Regis Singapore THANK YOU