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Route to Market & Supply Chain Blog

FMCG Supply Chains; Swiss legal entities & local Op-Cos - a taxing question

Posted by Dave Jordan on Wed, Apr 13, 2016

Personal and corproate taxation has been top of mind this week. Suddenly all sorts of UK policticians are publishing their tax returns in an attempt to show themselves whiter than white. Well, the tax returns will be Persil-white won't they or otherwise the tax man will already have had a word?

In an attempt to divert attention from the personal evasion/avoidance debate the politicians have announced a fresh look at how corporates pay (or not) tax across each of the EU states and this could have significant implications.

In Europe and Asia at least, there is a fashion for creating a new supply chain legal entity and housing it in a friendly canton in Switzerland (or the Singaporean equivalent). The prime benefit appears to be tax although operational and efficiency savings are often claimed to offset the nasty sounding “tax avoidance” or "tax efficiency" motivation.

Certainly, you cannot just put your name above a B&Q shed, buy a Twonkie desk from IKEA, install a phone and employ an office–sitter and meet the undoubted Swiss tax benefit requirements.

You really do have to locate your operational supply chain organisation in the tax beneficial location. This means the relocation of potentially large numbers of departments, employees and their families which is a challenge in itself but how does such a change affect the actual operation of the regional supply chain?

In theory, the Swiss legal entity takes ownership for the sourcing, supply planning and making, partial delivery logistics and support service elements of the chain and the actual stock until a 3rd party sale takes place. The satellite operations essentially concentrate on demand planning, secondary/customer logistics and customer service from a local distribution centre. This sounds simple yet you still have to maintain one unbroken chain and frankly, customers do not see nor why should they care about some far away alpine, chocolate box, snow-topped tax advantage.

FMCG_SUPPLY_CHAIN_EUROPE_TAX_.jpgThe local face to the customer will always enjoy the wrath of retailers when product is delayed or unavailable or of poor quality and that is irrespective of whatever corporate financial model is in place. The local people still have to take the blame for problems which may have occurred in a factory in a different hemisphere. However, the key is ensuring the entire chain really is one slick and seamless operation from start to finish AND all the players feel part of the same team. You must have shared objectives with KPIs and equal pain and gain in the wallet/purse at year end or failure is inevitable.

A centralised supply chain legal entity raises the importance of the local op-co S&OP working within a regional S&OP managed by the new, remote supply chain entity. Only one side working is simply not good enough. If you can generate a living team spirit in groups bound by shared objectives and integrated S&OP then you will have a regional supply chain working like the seamless movement of a quality timepiece rather than that of gloopy cheese dripping off a fondue fork.

Which one is most reminiscent of yours?

If the EU (+/- UK) gets tough on tax then we may be in for a fresh round of upheaval in blue chip supply chains.

Image courtesy of Sira Anamwong at freedigitalphotos.net 


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