What it means for tax
Tax must follow the business reality, and the reality is that value is being created at multiple levels and locations across the value chain — not in one neat and tidy place in a regional head office. As you think through the implications for your tax model, it might help to reflect on these questions:
1. Do the “traditional models” have any place in this new world?
- Is a limited risk distributor model applicable for markets where you are trying to drive growth?
- Can regional manufacturing hubs support an agile supply chain?
- Does centralized pricing help you respond quickly to market conditions?
2. If your operating model is unique to your business (and therefore difficult to benchmark), what’s the right transfer pricing approach?
3. Do the new business practices increase direct tax risk — how will private equity and withholding tax risk be managed?
4. What’s the best way to align how intellectual property is developed, maintained and exploited in your new model?
5. How do you create and structure the legal entities needed to house your business functions, assets and profits?
6. How will your new transfer pricing model and transaction flows affect your direct and indirect tax liabilities?
7. What role should financing play in your new tax model — and can your finance and treasury centers support a more decentralized operating model?
8. How should you reflect the business contribution of non-people functions? (For example how do you value and reward data and intelligent automation?)
9. What’s the best way to build flexibility into your new model, so you can grow or adapt quickly as operational needs change?
10. As your tax and operating models change, how much can you rely on existing incentives, advanced pricing agreements and rulings?
Given the significant changes to the business and tax environment, devising and implementing an operating and tax model with the right balance of global consistency and regional freedom is becoming a more complex and nuanced task.