The profitability of a business is directly impacted by how its supply chain makes and delivers goods, as well as by how that supply chain is structured to minimize trade and tax expenses Economic and technical developments drive change for businesses. As a business moves through its own life cycle ,the supply chain will also evolve, as procurement, manufacturing and distribution strategies change. The pace of change in the international tax environment is accelerating, as governments and tax administrations get to grips with BEPS. These developments will require businesses to react on a strategic and organisational level. Such changes invariably have an impact on VAT/GST and customs obligations. As the business reacts to changes in the external environment, it needs to revisit the design and operation of the supply chain at transaction level. This thought leadership from Grant Thornton explores both the indirect tax supply chain life cycle and the challenges, risks and opportunities at every stage within the supply chain.

1. International indirect tax survival
in a global supply chain
December 2015

3. International indirect tax survival in a global supply chain | December 2015
3© 2015 Grant Thornton UK LLP. All rights reserved.
Contents
Section Page
The supply chain is the cornerstone of business profitability 4
Global complexities demand agile tax structures throughout the supply chain 5
The supply-chain life cycle 6
How does this impact supply chain operations? 7
Procurement 8
Manufacturing 9
Logistics 10
Reverse logistics 11
Sales 12
Retail 13
A seamless international service 14
Contacts 15

4. International indirect tax survival in a global supply chain | December 2015
4© 2015 Grant Thornton UK LLP. All rights reserved.
The supply chain is the cornerstone of business profitability
The profitability of a business is directly impacted by how its supply chain makes
and delivers goods, as well as by how that supply chain is structured to minimize
trade and tax expenses
Economic and technical developments drive change for businesses. As a business
moves through its own life cycle ,the supply chain will also evolve, as procurement,
manufacturing and distribution strategies change.
The pace of change in the international tax environment is accelerating, as
governments and tax administrations get to grips with BEPS. These developments
will require businesses to react on a strategic and organisational level.
Such changes invariably have an impact on VAT and customs obligations. As the
business reacts to changes in the external environment, it needs to revisit the design
and operation of the supply chain at transaction level.

5. International indirect tax survival in a global supply chain | December 2015
5© 2015 Grant Thornton UK LLP. All rights reserved.
Global complexities demand agile tax structures
throughout the supply chain
Aside from the economic and technical factors that drive change, the tax environment is evolving fast.
Changes to consumption taxes around the
world, eg Japan and Australia
Increased administrative requirements
eg e-filing of returns, sales lists
New invoicing requirements eg
EU Invoicing Directive 2013
Frequency of tax rate changes eg
as austerity bites in the Eurozone
Standard audit file requirements eg
France, Malaysia and other places
Use of data interrogation by tax administrations
Senior accounting officer rules eg UK
Impact of transfer-pricing changes under BEPS
Global footprint and international supply chain
requiring multiple VAT/GST registrations
Penalty regimes focused on behaviour,
systems and controls eg UK
Pace and quantum of tax rule
changes eg the EU 'VAT package'
New VAT/GST regimes eg Malaysia GST
in April 2014 and GST in India in 2016 or 2017
Increased co-operation between
tax authorities eg MOSS and VIES
More aggressive audits by tax authorities hungry for revenue

6. International indirect tax survival in a global supply chain | December 2015
6© 2015 Grant Thornton UK LLP. All rights reserved.
The supply-chain life cycle
Supply
chain
lifecycle
1. Design
The supply chain is designed to
optimise revenue, production
and distribution costs across
the supply chain.
2. Implementation
The business must
implement the structure,
and ensure that it is
registered for VAT in the
relevant states.
3. Systems
Systems must be capable of
recording and processing
transactions in the correct state.
4. Compliance processes
Filings should be made on a timely
basis in the relevant states.
5. Tax risk management
The business must have
processes and controls to
mitigate risk and deal with
any compliance failures
identified.
6. Audit and disputes
The business must be able
to defend the tax structure
from official challenge.
7. Corporate transactions
These bring into focus issues of
separation or integration, which may
require redesign of the supply chain.
Supply chains go through a natural lifecycle, initiated by new products,
changes in market conditions, and corporate transactions.

7. International indirect tax survival in a global supply chain | December 2015
7© 2015 Grant Thornton UK LLP. All rights reserved.
How does this impact supply chain operations?
Every stage of the supply
chain has its own indirect tax
challenges, risks and
opportunities.
Procurement Manufacturing Logistics
Reverse logistics Sales Retail

8. International indirect tax survival in a global supply chain | December 2015
8© 2015 Grant Thornton UK LLP. All rights reserved.
Procurement
Issue
Procurement
The principal business should ensure that the correct VAT
treatment is applied at purchase order stage.
Duty and VAT on import
The importer is usually responsible for declaring:
• VAT on purchases from other EU states, and
• Duty and VAT on imports from outside the EU.
Customs reliefs
Duty and VAT act as a drag on cash flow if the goods are not going
to be put into production immediately.
Unfair competition and dumping
The World Trade Organisation allows countries to act against the
'dumping' of product. In the EU, anti-dumping duties can be
imposed with little or no warning, leading to increases in costs.
How Grant Thornton can help:
• Automation of tax code determination.
• Obtaining binding tariff information on specific products.
• Advice on valuation methodologies where the price paid or
payable cannot be used.
• Advice on customs relief systems such as customs warehousing.
• Advice on anti-dumping and countervailing duties.

9. International indirect tax survival in a global supply chain | December 2015
9© 2015 Grant Thornton UK LLP. All rights reserved.
Issue
Toll v contract manufacturing
Contract manufacturing allows the manufacturer to a achieve a fixed
margin on product sold to the principal business.
With toll manufacturing, the manufacturer is paid a fee. The goods
belong to the principal business throughout.
Goods sent for processing
Both the principal business and the processor have responsibilities
where goods are sent for processing:
• inside the EU – the principal business may need to register for
VAT in the territory of the processor;
• into or outside the EU – the processor can be responsible for
declaring the import.
Tooling
The principal business will typically want legal title to the tooling,
even if used by third parties in other countries. This can lead to a
charge to local VAT, which can take a long time to recover.
How Grant Thornton can help:
• Ensuring that the principal business is registered for VAT in
every state where it needs to be.
• Advice on customs relief systems such as:
– inward processing, and
– outward processing.
• Advice on structuring the purchase of tooling in such a way that
working capital is not tied up in VAT receivable balances.
Manufacturing

10. International indirect tax survival in a global supply chain | December 2015
10© 2015 Grant Thornton UK LLP. All rights reserved.
Logistics
Importing goods into the EU
States have a variety of ways of capturing duty and VAT on the
importation of goods, with different consequences for VAT in
working capital
Moving goods within the EU
Whilst the Single Market requires an absence of internal borders for
customs declarations, every intra-community transaction has to be
declared for VAT in both the ship-from and the ship-to state.
Businesses in complex supply chains need to know who is
responsible for each declaration.
Warehousing costs
Local VAT may be charged on warehousing costs, depending on the
location of the recipient of the warehousing services.
Transport and logistics
The related costs tend to be taxable in the state of the recipient.
However, who is responsible for organising the transport can affect
the VAT treatment of the sales of the goods themselves.
Export of goods
For exports to be free of VAT, the vendor must hold the evidence
required to prove that the goods have left the territory.
How Grant Thornton can help:
• Optimising the routing of product to benefit from
advantageous import declaration processes such as postponed
accounting.
• Building transaction maps to set out the VAT treatment and
reporting responsibilities for each type of transaction.
• Advice on transport and logistics, to ensure that particular
transport arrangements do not make the business liable for
VAT registration where it does not expect.
• Advice on the export evidence required state by state. Germany
and Hungary have recently introduced strict rules about the
documents exporters must hold.

11. International indirect tax survival in a global supply chain | December 2015
11© 2015 Grant Thornton UK LLP. All rights reserved.
Reverse logistics
Returns
Goods returned by customers may not follow the route taken by the
original sale. For example, goods may be returned direct to the
factory, rather than to the warehouse from which they were shipped
originally.
Service contracts
Multi-territory service contracts can cause problems, as the shipment
of spare parts and/or replacement goods into the customer's state
for the purposes of a service call may lead to the need for the
business to register for local VAT.
Warranty costs
Warranty risk normally lies with the manufacturer, but this may not
always be the case. The VAT treatment of warranty costs can vary
state by state.
Return of goods/resale of refurbished goods
Worn core is often returned to the manufacturer for refurbishment
before distribution into the aftermarket.
How Grant Thornton can help:
• Ensuring that the transaction map correctly reflects how returns
are dealt with, so that the movements can be accounted for
correctly.
• Review of service transaction chains to ensure that the arrival of
goods in the customer's state can be accounted for
appropriately.
• Advice on the treatment of warranty costs state by state.
• Ensuring that customs valuations correctly reflect where the
warranty risk lies, if not with the manufacturer of the goods.
• Advice on the resale of refurbished goods to ensure that
valuation of the relevant movement of goods is based on the
refurbishment costs only.

12. International indirect tax survival in a global supply chain | December 2015
12© 2015 Grant Thornton UK LLP. All rights reserved.
Sales
Distribution models and how they differ for VAT
Sales agency, commissionaire and limited-risk distributor have
different consequences for tax purposes. Sales agencies provide
services, but commissionaires are treated for VAT purposes as
supplying goods.
The importance of Incoterms
Incoterms and transport arrangements can affect who is responsible
for VAT and customs declarations in transaction chains.
Problem areas:
• Drop shipments – can lead to the intermediate supplier needing
VAT registration in either the ship-from or the ship-to state.
• Call-off stocks – unless the state concerned operates a relief,
holding call-off stocks in another state, eg at customer premises,
will make the business liable to VAT registration.
• Installed and assembled goods – again, unless the state
operates a relief – the supplier of installed and assembled goods
will have to register for local VAT.
• Bad debts – there is a danger of loss of Bad Debt Relief with
commissionaires and limited-risk distributors.
How Grant Thornton can help:
• Structuring complex supply chains to ensure that the business
does not have to register in multiple states.
• Advice on available reliefs state by state to minimise the need to
register for VAT in relation to call-off stocks and installed and
assembled goods.
• Advice on the detailed rules on Bad Debt Relief state by state to
ensure that VAT can be recaptured where debts are not
recovered.
• Implementation of tax engines to ensure:
– correct tax code determination,
– tax data integrity and updating, and
– automated production of VAT returns, EC Sales Lists and
Intrastat declarations.

13. International indirect tax survival in a global supply chain | December 2015
13© 2015 Grant Thornton UK LLP. All rights reserved.
Retail
In-store or internet sales?
Many 'bricks and clicks' retailers offer a mixture of in-store sales,
internet sales with home delivery, and internet sales with pick-up
in store.
Low-value consignment relief (LVCR)
Sales to EU-based customers from non-EU on EU non-VAT
territories can reduce costs by taking advantage of LVCR.
Electronically-supplied services
Increasingly, the sale of electronically-supplied services is taxable in
the state of consumption. Japan and Australia have recently
introduced 'Netflix taxes'.
Payment handling fees
There is little consensus within the EU, or between businesses and
tax authorities as to whether payment handling fees should be
subject to VAT or treated as an exempt financial service.
How Grant Thornton can help:
• Transaction mapping, and automation of tax code
determination for in-store and internet sales.
• Advice on structuring of postal distribution to use LVCR.
• Advice on the content and mechanics of customs declarations
made on behalf of postal customers.
• Advice on VAT reporting obligations and the use of the EU
Mini-One Stop Shop (MOSS) for electronically-supplied
services.
• Advice on the structuring of payment handling services to
optimise the availability of VAT exemption, including defence
of the structure as necessary before the tax authority.

14. International indirect tax survival in a global supply chain | December 2015
14© 2015 Grant Thornton UK LLP. All rights reserved.
A seamless international service
We have the scale you need to meet your changing needs
With more than 40,000 people in over 130
countries, we are a truly global organisation.
However big your organisation or however
international the challenges you face, we
have the resources to match.
We have member firms in over 130
countries worldwide. Between them, they
audit more than 2,500 listed companies and
work with some of the world’s largest
organisations.
We are ranked one of the top six firms in 88
markets around the world and we're well
established in all major business centers and
emerging markets.
We have indirect tax specialists (VAT/GST
and Customs) across the globe, in EMEA,
Asia Pacific and the Americas. $4.7bnrevenue in 2014 (USD)
over
130countries
40,000people

15. International indirect tax survival in a global supply chain | December 2015
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Contacts
Karen Robb
Partner – International Indirect Tax
Chair of the International Indirect Tax Committee
EMEA and member of the Global Committee
T +44 (0)20 7728 2556
E karen.robb@uk.gt.com
Alex Baulf
Associate Director – International
Indirect Tax
T +44 (0)20 7728 2863
E alex.baulf@uk.gt.com
Henry Cairns-Terry
Senior Manager – International Indirect
Tax
T +44 (0)12 1232 5173
E henry.cairns-terry@uk.gt.com
Ian Worth
Associate Director – Customs & Global
Trade
T +44 020 7728 2174
E ian.worth@uk.gt.com

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