Expansion into foreign markets is generally motivated by the perception that increased access to customers, vendors, natural resources, etc. will lead to increased shareholder returns. All too often, however, decision makers err by evaluating the impact of these opportunities under the organization’s current cost structure, failing to consider incremental costs associated with engaging cross-border trade (e.g., duties, freight costs, taxes). These additional costs are not always intuitive and can, in some cases, significantly hamper one’s ability to generate profits via foreign expansion. For example, consider a U.S. company that receives requests from customers in Latin American for services that can be delivered electronically from the U.S. company’s premises. But for knowing Latin American tax authorities often levy withholding taxes on outbound service fees that can reach levels as high as 25% to 30%, the company could enter contracts that lead to financial losses due to unforeseen tax implication of international trade…most companies do not have the flexibility to tolerate a reduction in margin of 25% to 30%.
The most effective way to avoid unforeseen tax costs associated with international trade is to proactively discuss potential pitfalls with a tax professional who can draw from broad experience advising global businesses to provide valuable insights that result in tax-efficient supply chain management (“TESCM”). In fact, proactive planning of tax-efficient supply chain management can transform tax issues into tax opportunities that deliver significant improvements to the financial performance of a global enterprise. The illustrative example provided below highlights some advantages of weighing tax optimization between jurisdictions against a multinational enterprise’s most efficient operational structure.
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For more information on tax efficient supply chain management, and its potential for your business please contact Ben Miller by calling 770.396.2200.