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© 2016 Baker & McKenzie
2016 Luxury & Fashion Industry Conference for Multinationals - Singapore
23 February 2016 | 9:00 am – 1:00 pm |
The St. Regis Singapore
© 2016 Baker & McKenzie
2016 Luxury & Fashion Industry Conference for Multinationals - Singapore
Supply Chain Issues in
ASEAN / TPP / FTA
Eugene Lim, Baker & McKenzie.Wong & Leow
Jaclyn Ho, Baker & McKenzie.Wong & Leow
© 2016 Baker & McKenzie
Optimising the Supply Chain
Integral part of businesses
Competition is driving businesses to be more efficient in their supply
chain operations
Custom duties and indirect tax savings are
low hanging fruits to achieve such cost
savings
© 2016 Baker & McKenzie
From Catwalk to Customer
Design Manufacture and source
Transport and logistics
Warehouse operations
Distribute / Sell
© 2016 Baker & McKenzie
Supply Chain - Basic Building Blocks
1. Customs duties 2. Excise duties 3. Indirect taxes
4. Permanent establishment
5. Transfer pricing 6. Incoterms
© 2016 Baker & McKenzie
Regional Distribution Company
Regional Distribution
Company
Headquarters / IP
Company
(e.g., U.S., Europe)
Manufacturers
(e.g., Europe, China,
ASEAN)
Suppliers
(e.g., various locations)
Distributors / Retail
stores
(e.g., various Asia
Pacific locations)
Customers
(e.g., various Asia
Pacific locations)
IP License
Finished
goods
Raw
materials
Finished
goods Raw
materials
Finished
goods
© 2016 Baker & McKenzie
Supply Chain Planning Considerations
Location of Regional Distribution Company
• Singapore vs. Hong Kong
• Regional distribution companies can be essential in supporting large-scale retail and direct-to-consumer operations
• Properly implemented, regional distribution companies enable shorter retail and direct-to-consumer fulfilment cycles while maximising duty and tax efficiencies
1.
Singapore Hong Kong
• Generally duty-free for most consumer goods
• A Singapore regional distribution company may
enable FTA benefits in Asia.
• Other considerations: Substantial investment and
long-term commitment for tax and investment
incentives, high rental and labour costs
• Generally duty-free and no has no VAT
• Proximity to Southern China makes most inbound
movement cost-effective
• Storage in HK distribution centre disqualifies
products from ASEAN FTA preferences.
• Other considerations: Hong Kong profits tax, FTA
qualifications, high rental and labour costs
Involves (i) tax planning; (ii) customs duty and free trade agreement (“FTA”)
planning; and (iii) general operating expense concerns
© 2016 Baker & McKenzie
Supply Chain Planning Considerations
Transfer Pricing
• Principle guiding transactions between associated entities is that the transactions must be at arm’s length.
• Generally, profits follow ownership of functions, assets and risks
Customs and Duties
• Interaction between Asean Economic Community (“AEC”), Trans Pacific Partnership Agreement (“TPP”) and FTAs
• Bonded contract manufacturing regimes to defer custom duties, excise duties and import GST
• How the IP structured may substantially impact indirect tax and customs duty liabilities
2.
3.
© 2016 Baker & McKenzie
Supply Chain Planning Considerations
Manufacturing arrangements
• Contract manufacturing structures 4.
Turnkey Toll
Principal
Manufacturing
Co.
Finished
goods
(purchase)
Raw
materials
(sale)
• Buy-sell relationship
• Manufacturing Co.
bears risk of loss of
inventory
• Availability of bonded
manufacturing
arrangements to defer
custom duties and
import GST
• Treatment of locally-
sourced raw materials
and local sales of
finished goods
Principal
Manufacturing
Co.
Finished
goods
(return)
Raw
materials
(consign)
Tolling
fee
• Consignment
relationship
• Principal bears risk of
loss of inventory
• Availability of bonded
manufacturing
arrangements
• Treatment of locally-
sourced raw materials
and local sales of
finished goods
• Applicability of GST on
tolling fee
© 2016 Baker & McKenzie
Supply Chain Planning Considerations
Distribution arrangements
• Multi-channel retail
• Retail distribution / Wholesale distribution / Licensee distribution
5.
© 2016 Baker & McKenzie
E-Commerce
Manufacturing
Co. / Regional
Distribution Co.
Customer
Website of
brand
owner
Brand’s Own Website
2. Delivery of
goods
1. Order and
payment made
online
Market Place
Manufacturing Co. /
Regional Distribution Co.
(registered dealer on
platform)
Customer
E-
Commerce
platform
4. Delivery of
goods
2. Order and
payment made
online
3. Informs
dealer of order 5. Net
amount
remitted
after
deducting
service
fee
1. Listing of
goods on
website
© 2016 Baker & McKenzie
E-Commerce – Tax Considerations
Which entity will make the sale? To which entities are profits attributable?
“Reverse-charge” mechanism
Permanent establishment issues
Double taxation issues and the applicability of foreign tax credits
Transfer pricing
VAT registration issues – who is the supplier of services and who is liable for compliance?
Customs value impact
1.
2.
3.
4.
5.
6.
7.