Expanding Global Footprint
With a renewed focus on the supply chain, companies will be looking closely at their global footprints, and potential opportunities to either expand or reduce their presence overseas, given their new capabilities.
As manufacturers evaluate potential changes to their supply chain operations, they will need to assess potential exit charges, permanent establishment status and the preservation of tax attributes on the movement of functions, assets and risks.
Manufacturers expanding supply chain operations domestically or reducing their domestic footprint must also consider the implications on state nexus.
Additionally, corporate manufacturers that sell or lease property to foreign customers or provide services overseas should consider whether such activities will qualify for the Foreign-Derived Intangible Income (FDII) deduction, which can reduce their effective tax rate on eligible income by almost 8 percent.
Using Tech to do More at Home
If the move to robotics, 3D-printing or end-to-end supply chain visibility allows manufacturers to produce or serve more in the U.S., or reduce raw materials coming from outside the U.S., then indirect taxes may be impacted.
Valued added taxes (VAT) and other indirect taxes, including customs duties, are complicated and often overlooked as a part of a company’s total tax liability. Moreover, goods crossing national boundaries require customs classifications, and goods with technical content can be particularly challenging to define. Any shifts in the flow of goods and sales overseas should prompt a new look at indirect and VAT tax exposures.
Optimizing Your Space for Industry 4.0
Some companies may find that their factory or corporate space is no longer aligned with the needs of their new digital strategy. In some cases, this could mean expanding or downsizing, or moving factories or offices closer to their talent pool.
Many state governments are eager to attract companies (and therefore jobs) to their state, and some will offer tax benefits and incentives to do so. From tax rebates or exemptions to discretionary cash grants or infrastructure assistance, consider whether there is potential to receive or negotiate economic and tax incentives in any new site selection strategy.
Whether it’s a new site or the enhancement of an existing site, now is a good time for manufacturers to consider capital spending. Costs associated with all types of site optimization can be subject to advanced federal tax depreciation opportunities—from newly-constructed buildings to significant remodels and renovations—often resulting in significant cost savings. In addition, under the new tax law, companies will be able to fully expense certain capital expenditures, including acquisitions of used property, for purchases made from Sept. 28, 2017 through 2022.
Creating New Intellectual Property (IP)
Developing IoT-enabled products or proprietary solutions to digitize the factory or optimize the supply chain often includes the development of intellectual property.
Proactive management of new and existing IP assets can help manufacturers reduce their overall global effective tax rate.
Keep in mind that the tax treatment of IP differs from country to country. Depending on business arrangements, new IP established by multinational companies could impact transfer pricing strategies and overall tax liability.
Talent Management
Industry 4.0 demands more engineers and a skilled workforce to operate a new breed of machines and equipment. Existing manufacturing jobs may also be replaced by automation and robotics technologies.
Any changes to the workforce—whether hiring, firing or reassigning—have implications for employment taxes. Competition for talent is at an all-time high, which may mean reevaluating compensation packages and fringe benefits. Changes to workforce distribution may also impact tax reimbursement for global mobility programs.
Due to global demands for skilled labor, manufacturers may need to relocate or hire employees overseas. Doing so requires navigating a complex web of international tax regulations and carefully considering the tax compliance implications of having employees based abroad.