The Tax-Sensitive Supply Chain

To understand the taxation significance of supplier activities, the physical location of supplier trade, cost-intensive activities, and/or those activities that are most risk fraught but potentially, if not actually, value-adding, a value chain model that takes taxation conditions into account could be devised.

As mentioned earlier, it might emerge that supplier costs are relatively high or low due not to trade volume, which implies value-adding or operations criticality, but to tax conditions, labour costs, and other economic factors in the region where the supply is sourced or the operation performed. For example, the per-hour, per-person cost of locomotive maintenance in Poland could be lower than the per-hour, per-person cost of track labour in France. If locomotive maintenance is less substitutable than track labour (likely), concentration of locomotive maintenance in a lower cost region will be rational. Ceteris paribus, the case for preferring low corporation tax, low wage countries as centres for the location of key operations will be strong.

The ramifications of such an insight, if obtained, will be profound. The case for supply chain and logistics network reconfiguration according to taxation conditions will be clear.