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Vergide Gündem
English Translation

Supply chain disruptions and their impact on
transfer pricing 1

Transfer pricing is where tax meets supply chains. Anyone managing disrupted
supply chains needs to understand the transfer pricing tax consequences.

Supply chain disruptions are amongst the top business challenges these days as
economies recover from the COVID-19 pandemic. Inflation, labour shortages,
geopolitical issues, trade tensions and unprecedented changes in international tax
policies are key contributors to these disruptions. The Russia-Ukraine war-related
sanctions and lockdowns from China’s zero-COVID policy further exacerbate these.
From delays in production to the reduced workforce, disruptions to supply chain will
be felt some years into the future.

In response, many companies are implementing operational changes to mitigate
the impact on their bottom-line profit to become more resilient to unexpected
events, and manage other important matters such as cyberattacks, commodity price
fluctuation, supplier risks and environment, social and governance (ESG) concerns.

A survey EY conducted with more than 200 senior-level supply executives noted
that many multinational enterprises (MNEs) are transforming their supply chain
strategies to become more resilient and collaborative with customers, suppliers and
other stakeholders. Such initiatives often require major investments in supply chain
technologies such as artificial intelligence and robotic process automation while
retraining workers and redefining the roles and responsibilities of key employees and
legal entities in the value chain.

These initiatives considered by companies often result in important operational
changes, including:

• Redesign of the supply chain operating model to take into account new trade
agreements and country incentives. This often results in a geographical shift of
production sites and warehouses.
• Improve transparency and resiliency in the supply source by developing
or improving real-time end-to-end visibility of the supply chain. This enables
timely decisions to address unexpected disruptions. The results are changes in
the suppliers' pool for better diversification in terms of number and geographic
concentration.
• Cost savings across supply chain, which may consist of working capital
improvement through a reduction in product mix (e.g., stock keeping unit (SKU)
rationalisation), changes in supplier payment terms, logistics and warehouse
optimisation and improvement in manufacturing productivity through automation
or outsourcing.
• Sustainability review of manufacturing practices to reduce waste and monitor
suppliers for their sustainability practices. This can have important reputational
implications and material cost savings.
• Digital supply chain review to assess opportunities for digitalisation of end-to-end
supply chain across planning, procurement, manufacturing and logistics. This can
drive efficiencies and open new revenue streams.
1 https://www.ey.com/en_sg/you-and-the-taxman/supply-chain-disruptions-and-their-impact-on-transfer-pricing

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