Companies are not getting full value out of centralising procurement in tax-efficient locations by failing to factor in the importance of the area’s operational capabilities.
Speaking at the Procurecon 2012 conference in Brussels last week, Alaba Adedayo, a director at accountants Ernst & Young, explained that despite companies facing criticism for minimising the amount of tax they pay, it will continue to grow as a trend.
He said: “We’ve all heard in the press about organisations moving to low-cost or low-tax locations and paying single digit tax returns on income from the UK…[But] we’re all going to employ tax efficiency going forward as companies need to save money.”
He explained that four out of the top five global consumer products companies had either already or were in the process of moving their procurement operations to a low-cost location.
But, he argued, when deciding on where to relocate procurement, companies often become too fixated on one factor rather than looking for a combination of benefits. “Either the organisation consolidates and creates a group hub or function in a location that doesn’t provide tax benefits, or it looks at tax benefits and doesn’t look at the operational benefits there,” he said.
He told the audience that to employ an effective tax efficiency strategy for a decentralised model is “virtually impossible”.
“You miss out on economies of scale benefits. Centralisation, on the other hand, gives you much greater control in relation to location,” he said.
13 November 2012, Adam Leach, SupplyManagement