Cross-border Tax Talks

Overview

Host: Doug McConey, PwC's U.S. International Tax Services Leader
Guest: Alex Velasco, International Tax Partner, PwC's Washington National Tax Services Practice; Leader of Value Chain Transformation Practice
Discussion on international taxation trends, supply chain disruptions, and tax implications

Definition: A collection of capabilities allowing a company to make money
Example: From market insights, R&D, supply chain, manufacturing, and sales to market distribution
Comparison to Supply Chain: Supply chain is part of the value chain but not the entire process
Demand Chain: Important for getting the product to the customer
Management Consultant Terms: Innovate, plan, make, source, deliver, and sell

Cross-border Tax and Transfer Pricing: Each aspect of the value chain has tax consequences
Related Parties: Compensation needs to be appropriate across various cogs in the wheel
Unique Company DNA: Every company has unique operations impacting tax advice

2020 Disruptions: COVID-19, economic impact, trade policy changes pre-COVID-19, and various geopolitical factors
Examples of Disruption: Factories in China recovered but ocean freight or warehouses in Europe caused delays
Reactions: Companies rethinking business models for long-term stability
Government Role: Changes in trade policies impacting corporate responses
Diverse Trends: Nearshoring, disintegrating supply chain operations, redundancy planning

Tax Revenue Focus: Governments increasing tax rates and tightening regulations to boost revenues
Country-by-country Reporting: Enhanced visibility into cross-border operations
Integrated Audits: Coordination among different taxing authorities
Corporate Actions: Simplifying operations, reducing costs, leveraging data analytics for efficiency

Long-term Decisions: Difficulties and time required to change entrenched supply chains
Trends: Companies avoiding sole reliance on one country (e.g., China)
Shift to Nearshoring: Closer to key markets for shorter lead times
China's Role: Still a major player due to its massive market and integrated supply chain
Digital Service Taxes and Trade Policy: Significant tax policy changes impacting global operations

Simplification and Efficiency: Companies aiming for leaner operations post-COVID-19
Automation: Using data analytics to streamline processes
Transactional Models: Moving towards models like toll manufacturing, single sales entities to reduce complexity
Tax Consequences: Significant for both cost management and efficiency
Foreign Tax Credit Rules: Stewardship and interest expense impacting tax credits, especially under GILTI

Impact of COVID-19: Remote work creating potential PE risks
Government Relief: Limited and short-term
Operational Reality: Companies operating virtually, need documentation to manage tax complexities
Tax Tools: Available but require vigilant management
Global Governance Models: More decisions made globally by virtual expert groups

Continued Aggression by Tax Authorities: Ongoing pressure on PE and transfer pricing risk
Final Thoughts: Importance of managing global tax complexities amid evolving business landscapes

Doug McConey, PwC's International Tax Services Leader
Alex Velasco, Value Chain Transformation Leader and Partner at PwC's Washington National Tech Services Office
Available bi-weekly on Cross-border Tax Talks

Disclaimer: Podcast for general information purposes only, not a substitute for professional consultation.