THE BUSINESS REVIEW FOR PROCUREMENT LEADERS
By aligning tax planning and procurement strategy it is possible to manage a company’s tax liabilities more effectively. This is the essence of tax-effective procurement (TEP). Three main factors are driving TEP on to the CPO’s agenda: the transformation of procurement operations in response to globalisation; a business requirement to be as tax effective as possible; and keeping pace with competitors.
A typical TEP structure involves the centralisation of value-adding elements of procurement in a tax-effective location such as Switzerland or Ireland. The “procurement company” provides services to local operating firms and in return collects a fee, known as a “transfer price”. Profits from this activity are taxed locally, which reduces the company’s effective tax rate.
TEP can also improve levels of compliance, manage risk more effectively and improve the relationship between finance and procurement. Practical challenges include getting the right organisational structure, the relocation of key staff, and identifying the correct fee levels.
While many multinational companies are looking at individual components of TEP, few are taking an integrated view. This gives many CPOs an opportunity to further demonstrate their worth.
