Switzerland's Low Tax Regime Not Its Only Attraction As Exodus Location, Finds KPMG

by Ulrika Lomas, Tax-News.com, Brussels

30 January 2009

A growing number of international companies, primarily from the US and Asia, are moving their headquarters to Switzerland - and not only for tax reasons. Located in the heart of Europe, it seems only fitting that companies should choose Switzerland to centralize their management functions. Many companies are using Tax Efficient Supply Chain Management (TESCM) to analyze their existing value-creation model and to generate savings on both taxes and operating costs by reengineering their value chain and shifting functions, risks, and assets to Switzerland. In a joint collaboration, KPMG Switzerland, the University of St. Gallen and the Swiss Federal Institute of Technology Zurich produced a white paper which clearly explains why Switzerland is a particularly attractive location in which to establish principal companies that enjoy low taxes, and how such companies are the key to implementing TESCM projects successfully.

In order to keep pace with their competitors, multinational corporations must constantly boost efficiency, lower possible risks and optimize global structures. But managing a global value chain in times of turbulent markets presents a particularly arduous challenge. By centralizing functions, all stages of the value chain can be simplified, thereby generating cost savings. Taking tax aspects as well as operating potential into consideration when setting up a principal company promises to be an innovative approach and generates the biggest benefits possible for these companies. This approach is known as Tax Efficient Supply Chain Management (TESCM).

When optimizing their supply chain at the international level, companies cannot avoid tax issues because the requirements placed on an efficient supply chain and the related tax regulations are not always compatible and can sometimes be very complex. The integrated approach of a TESCM project minimizes these risks as both of these aspects are always taken into account, and the best solutions are developed through an iterative process. Here the most important function is the establishment of a central principal company which incorporates the various activities, functional areas, and the risks of a company. In this way the flow of goods and tax consequences can be coordinated and optimized equally. But the choice of location for this type of principal company is crucial.

The following were identified as the key drivers of a successful TESCM project:

• Business always comes first: tax models follow business models.
• Operational performance determines success in the long run.
• Material assets need to be relocated. Contractual rearrangements alone are not sufficient.
• TESCM can create a new competitive advantage in dealing with complex business processes.
• Successful implementation can lead to enormous financial benefits.
• Accurate planning and sensible communication are vital.
• The choice of TESCM approach depends on the firm's structure and business model.
• Experts are often available to address challenges such as contract wording, tax regulations and IT implementation.
• Change management should always include the employees concerned in the development of solutions.

Overall, the interviews conducted during the preparation of this white paper reveal that the effort put into planning and preparing for the successful implementation of TESCM generates a quick financial return.

The white paper, "TESCM - Hotspot Switzerland: What are the benefits of moving a business to Switzerland?" essentially affirmed that the reasons companies have traditionally chosen to move to Switzerland - a favorable tax and legal environment, high quality of living, comprehensive infrastructure and a qualified workforce - still hold true. And this also applies to implementing TESCM for logistical tax purposes: "For multinational companies that are looking to reorganize their operating models and business processes in Europe by setting up a centralized supply chain management function, Switzerland has always been the country of choice," says Giulio de Lucia, Partner and Head of Restructuring and Performance Services at KPMG Switzerland. The white paper confirmed this assessment.

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