4 Benefits You Could Realize by Aligning Your Tax and Supply Chain Strategies

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For this edition, we’re exploring four reasons why the tax department needs to play a role in setting the supply chain strategy for their business.

Did you know that 45% of tax executives say they are not involved in supply chain planning? That's according to BDO’s 2022 Tax Outlook Survey , which found that business leaders do not always consult with their tax departments on decisions that can affect their companies’ total tax liability.

Here are four major benefits of aligning your tax and supply chain strategies.

1. Balance Operational and Tax Efficiency

When tax and operational leaders work together, they can gain an edge over competition in terms of speed and cost. Aligning tax and supply chain strategies can help ensure that all supply chain decisions are made with tax liability in mind. To achieve this, tax departments should use technology to quickly provide projections to operational leaders and insights to the broader business.

In 2022, according to BDO data, 97% of tax executives are investing in tax technology, which will improve the tax department’s ability to capture and analyze data. However, companies will need to invest in training their people to realize the full benefits of the tools and empower them to take on a strategic advisory role to operational leaders beyond the tax department.

Learn more about how to transform your tax department to drive greater value.

2. Optimize Your Total Tax Liability

Companies looking to optimize their total tax liability should keep supply chain planning in mind, as the right decision can achieve tax savings, while avoiding unwanted tax impacts. For example, moving an asset – whether production facilities, intellectual property or customer data – can incur exit taxes and can lead to significant tax liabilities that can take years to recover from.

Omitting tax considerations from planning can lead to missed opportunities for tax savings. For example, if supply chain leaders are not aware of federal, state and local incentives available to companies who onshore operations to the U.S., they may miss key tax savings opportunities when the business undergoes the transition.

Learn how to gain greater insight into your business’s total tax liability.

3. Manage and Mitigate Tax Compliance Risk

Tax authorities around the world are stepping up scrutiny to recoup lost revenues from the past few years of economic turbulence by updating their transfer pricing policies and aligning them to their current business practices. If your tax structure falls out of sync with your operating model, you could be subject to additional tax exposure via tax disputes or double taxation.

Tax leaders also need to keep supply chain leaders apprised of possible changes to global tax rules. This way, your organization can avoid pursuing supply chain strategies that could be disadvantageous from a tax standpoint. For example, offshoring production to another country could expose your organization to increased tariffs if political relationships become unfavorable and trade treaties change.

Learn how we helped a manufacturer minimize tax risk and achieve savings.

4. Future-Proof Your Tax Structure

If your tax planning approach is reactive to your supply chain strategy, you will be stuck with a patchwork tax structure that requires continual updates. Future-proofing your tax structure means building a foundation that is flexible and aligned with your business’s goals.

Consider creating a playbook for adjusting your tax structure as part of major business decisions, such as relocating parts of your supply chain, integrating new operations via M&A, changing suppliers or entering a new market. This way your business does not have to start from scratch with each operational decision.

The Way Forward

As businesses prepare for a possible recession, many will consider significant changes to their supply chain to increase cash flow and improve resilience. Organizations that have aligned supply chain and tax strategies will be more successful as they pursue these approaches. With increased efficiency, they will also secure competitive advantages that will put them ahead of the competition in the long run.