Organizations often view taxes as a necessary evil. And, indeed, business taxes
are considered unwieldy, complex — even frightening. As a result, they are often
relegated to the corporate tax department.
However, when a business decision is made
— invariably a tax decision has also been
made — albeit unwittingly at times, says
Jamie B. Fowler, partner and Tax Practice
leader for the Dallas office of Grant Thornton
LLP accounting firm.
“An organization’s true tax burden is
embedded in operations and throughout the
company’s supply chain,” says Fowler.
Smart Business spoke with Fowler about
how tax planning can and should become a
management tool for a company by making
tax strategy an integral part of business
strategy.
In what business areas should taxes be given
the most careful consideration?
At Grant Thornton, we typically examine
a company’s tax position along critical
areas of the supply chain: research and
development, procurement, processing,
assembly, distribution (which includes both
transportation and warehousing), sales and
marketing, service, and support. We also
consider the functions that surround the
supply chain including brand management,
merchandising and marketing, finance, customer relationship management, distribution and asset management, and retail.
For example, take an area such as brand
management. Many companies view brand
management and the related ability to
influence the look and feel of the customer
experience, as the primary organizational
value driver. From a tax viewpoint, value is
added at the point in the supply chain
when goods are branded. This, in turn,
determines the jurisdiction of taxability as
well as value of those goods for income
and property tax purposes.
In addition, where licensing and intellectual property are attached to the brand
through copyrights, patents and trademarks also impacts the jurisdiction of taxation and may impact custom and duty
charges when a product is imported.
If managing taxes can have such grave implications on profits, why isn’t it done?
The problem lies in our history as well as in
the way our organizations are typically structured. The corporate tax department is
rarely looked to for innovation. The prevailing views are these: (1) The less we hear
from the corporate tax people, the better or
(2) the tax department is a post-mortem
compliance function.
Many companies don’t want to undergo
this kind of tax planning because they have
the mistaken assumption it will have a negative impact on customers. Good tax planning will be transparent to customers, but
it won’t be easy. There has to be a culture
and discipline present around having tax
professionals at the table at the front end
of business decisions.
Frankly, the time period of tax shelters in
the late ’90s actually hurt the cause I’m
advocating. Organizations in general now
have a ‘don’t-get-burned’ attitude and have
relegated the tax function even further into
the back office. In the tax shelter days,
companies would sign a few documents,
make some quick superficial changes, and
large tax savings would somehow fall out.
Of course, those savings weren’t sustainable and don’t represent true strategic tax planning. Because of this, many organizations are now very risk-adverse and may
avoid embracing the tax function.
What are some steps an organization can
take to make that cultural shift?
It starts from the top down with CEOs
and audit committees. Taxes need to be
pulled out of the financial cost center,
embedded in the operational profits centers and given a seat at the table whenever
there are strategy decisions, great or small.
In my view, taxation is the last management frontier. We’ve tackled our supply
chains with Total Quality Management,
‘Just in Time,’ Six Sigma and other methodologies. We have embraced many changes,
such as developing closer relationships
with suppliers and sharing once-sensitive
information. Our supply chains have
become more global, more technologically
advanced and cross ownership is common.
I contend that the truly competitive organization will now look to taxation in every
part of its supply chain as a management
tool and competitive advantage.
Are there businesses that have embraced
taxes as a management tool?
Yes, and they regularly involve tax professionals along the entire business
process, including all production and supply chain conversations and IT decisions.
All types of taxes are considered before
making decisions, including transaction
taxes, income taxes and international
levies. This kind of front-end management
of taxes cannot only save a lot of money,
but it is the only way to truly understand
operational product margins.
There is no better time than now to
change the way organizations think about
taxes. With Sarbanes-Oxley, most companies have been required to examine their
business processes … why not examine
the way taxes are viewed as well?
JAMIE B. FOWLER is a partner and Tax Practice leader for the
Dallas office of Grant Thornton LLP. Reach Fowler at (214) 561-2306 or [email protected].