Global distribution network design: exploration of facility location driven by tax considerations and related cross-country implications

Abstract

Multinational corporations (MNCs) are moving not only their headquarters but also their logistics operations to low-tax jurisdictions to minimise the tax burden. However, the logistics and fiscal domains are guided by different principles. This study aims to explore the cross-country implications of locating facilities in low-tax jurisdictions to take advantage of tax arbitrage. A single case study is developed, considering a fashion MNC that moved its European warehouse from Italy to Switzerland.The study offers theoretical insights about cross-country logistics network reconfiguration, formalising three possible scenarios and deepening the related implications. A quantitative evaluation of those scenarios is proposed, updating logistics cost items by including fiscal specifics and exploring the mutual interdependence between logistics and fiscal elements. To improve the study's managerial contribution, the influence of contextual parameters is also investigated, showing that facility location for tax purposes does not necessarily lead to maximise net income after taxes.

Assessing the environmental impact of logistics sites through CO2eq footprint computation

“…In the second research phase (i.e., modelling), a model to assess the environmental impact of logistics sites was developed. An analytical approach was selected, as it offers flexibility (i.e., changes and modifications can be applied to each single modelled activity with limited effort) and transparency (i.e., hypotheses are clear and evident from the equations) (Prataviera et al, 2020). The model was developed using Microsoft Excel with Visual Basic for Application (VBA) programming.…”

Revisiting postponement: The importance of cross‐functional integration to understand tax implications in global supply chains

“…Consequently, SC design influences direct and indirect taxes to be paid (Shunko et al, 2017), and the tax implications related to SC design that involves multiple jurisdictions are an increasingly relevant problem that academics and practitioners must examine (Cohen & Lee, 2020). Logistics and SC management (SCM) studies have examined tax implications related to specific topics, for example, manufacturing offshoring (Dong & Kouvelis, 2020; Hammami et al, 2008; Wang et al, 2016), facility location (Arntzen et al, 1995; Mariel & Minner, 2015; Prataviera, Norrman, & Melacini, 2022), firms' structure (Hsu & Zhu, 2011; Shunko et al, 2017), and transfer pricing (Fernandes et al, 2015; Miller & de Matta, 2008; Vidal & Goetschalckx, 2001). However, to understand tax implications for SC decisions better, logisticians first should increase their familiarity with specific terms (Table 1).…”

“…PE is a cornerstone of international taxation aimed at reducing uncertainty for taxpayers with cross‐border operations, leading to fair sharing of taxing rights among jurisdictions (Petriccione, 2007). This relates to the critical concept of economic (or tax) substance , which helps determine the foreign entity or transaction's actual operations or role in avoiding an operation established only for fiscal reasons (Prataviera, Norrman, & Melacini, 2022). Another critical factor is the jurisdiction in which the manufacturing operations are performed, typically indicating the goods' origin.…”

“…To improve SC performance and reduce costs, MNCs can divide their enterprises, concentrating high value‐adding functions (those bearing the most meaningful risks) into specific organizations or principal structures (Bhutta et al, 2003; Shunko et al, 2017). MNCs could locate strategically in different jurisdictions to take advantage of lower tax rates and allocate costs and revenues across them to improve after‐tax profits (Prataviera, Norrman, & Melacini, 2022; Shunko et al, 2017), thereby taking advantage of opportune transfer pricing (Fernandes et al, 2015; Vidal & Goetschalckx, 2001). Tax savings obtained by utilizing skillful arrangements of fiscal logistics can be so substantial that from the MNC's perspective, they sometimes justify considerable increases in logistics costs that may result from locating units in more distant states with lower tax rates (Frias et al, 2014; Henkow & Norrman, 2011).…”

The Importance of the Facility Location Techniques to Assist Companies in Decision-Making for the Installation of Logistics Hub

“…The selection of locations for installation, such as a logistics hub, is a complex issue that involves a set of factors, such as cost, travel time, modal types, infrastructure, market accessibility for goods and services, environmental impacts of facilities, among others (Hiassat, Diabat, & Rahwan, 2017;Prataviera, Norrman, & Melacini, 2022). Existing approaches to solve FLP problems can be divided into two main groups: deterministic approaches and stochastic approaches (Shavarani, Nejad, Rismanchian, & Izbirak, 2018;Deutsch & Golany, 2018).…”