Tax teams of multinational enterprises (MNEs) in the manufacturing industry face increasing challenges to manage business and market risks effectively. This, in part, is due to increasing legislative activity and scrutiny of funding activities by tax authorities around the globe.
These changes create an ever-increasing demand on manufacturing tax departments to report on cross-border situations and transactions. New demands include master and local files in transfer pricing, country-by-country reporting, controlled foreign company reporting under EU Anti-Tax Avoidance Directives, global intangible low-taxed income in the US, and the Mandatory Disclosure Regime in the EU.
In addition, the implementation of the outcomes of the Base Erosion and Profit Shifting (BEPS) project by the Organisation for Economic Co-operation and Development (OECD) is significantly affecting the supply chains of businesses around the world.
Manufacturing organizations will succeed if they can adapt quickly to shifting supply chains and maintaining agility in reporting.
For your tax team to be agile, you’ll need to optimize tax technology and processes so you can both spot data insights and mitigate risk. Here are key tips to stay adaptable in the ever-changing tax landscape of the manufacturing industry.
Use a Single Source of Truth With a Streamlined and Centralized System
International tax agreements are slowly moving forward and will affect manufacturers with a multinational footprint. The OECD’s two pillar approach includes new taxing rights for certain market jurisdictions along with a global minimum tax aimed at income subject to a rate lower than 15 percent.
In reaction to these rules, some jurisdictions, including those in the US, have proposed a qualified domestic minimum tax, which would allow the host country to step in and apply a minimum tax to its residents, precluding other jurisdictions from capturing the minimum tax under the income inclusion rule (IIR) or the undertaxed payments rule (UTPR). In short, international taxes of supply chains now come with a plethora of considerations that weren’t there before.
With the current and proposed changes, having software that can optimize your tax processes through a streamlined and centralized system is essential for generating reporting and insights that you can trust. Without a connection to source data, the risk of errors in your tax reporting skyrockets, bringing with it countless hours of double-checking the numbers.
With Longview Tax, you’ll be able to compare apples to apples across jurisdictions and business units, it becomes much easier to identify and understand your main rate drivers. This timely and comparative reporting is exactly what you need to see your group’s effective tax rate (ETR) much earlier on and act if needed. And you’ll be able to complete provisioning faster because data is presented in real-time, without needing to wait on data consolidation or processing.
Eliminate Supply Chain Silos
Supply chain issues can easily throw manufacturers’ tax planning into disarray. Disruptions can result in sourcing from different jurisdictions creating different trails for each product. As these challenges continue companies have been forced to adapt their processes, including traditional tax planning.
Consider as well the added complexity of having to deploy different transfer pricing approaches to supply chains. The OECD’s two pillar plan will add a transfer pricing safe harbor for certain marketing and distribution activities, referred to as “Amount B” under Pillar One.
As companies start to plan, there will be a rearranging of supply chains, with more distribution and market activity changes and profits shifted to lower-taxed or tax-incentivizing jurisdictions.
Failing to sufficiently invest in your tax solution will put you at a disadvantage, unable to proactively track the health of your supply chains. A lack of visibility could mean your subsidiaries feel blind, working with uncoordinated reactionary pricing changes.
A well-designed reporting system like Longview Tax serves up real-time data from across the entire company. An agile reporting platform, it brings together data from disparate systems that you use for production, accounting, supply chain, and customer relationship management. And the reporting function serves as a central hub for your information, eliminating the barriers that have historically separated your systems.
Understand Your Research and Development
Manufacturing accounted for 58 percent of US domestic research and development (R&D) spending in 2019, according to the National Center for Science and Engineering Statistics. That means tax law changes to R&D investment are a major concern in the industry.
One of the biggest new issues is the requirement that beginning in 2022 US companies must capitalize and amortize the research and experimentation (R&E) tax credit under Section 174 over five years instead of expensing them. The change came from the Tax Cuts and Jobs Act to offset the revenue lost from cutting the US corporate tax rate. Many more changes like this one are in the works.
Without the right software solution, you are setting yourself up for an R&D headache. Ad hoc manual reporting will take hours away from more important tasks, and dramatically increases the risk of errors. Even the smallest mistake can make or break a company during an audit.
By automating your tax data processes within Longview Tax, you’ll be able to streamline your tax activities and have more confidence in your data, all while reducing operational costs and risk. Maintaining financial agility is key for manufacturers and investing in the right tax reporting tool goes a long way towards this goal.
To learn more about how Longview can help you manage your manufacturing tax processes, ask for a free demo.