However, understanding the issues involved is critical to designing an optimal network. Over the last two decades, the value of intangible assets as a share of total market capitalization of U.S. companies has nearly doubled to more than 70 percent. 35 To boost growth and attract high value-added activities, dozens of countries now offer companies tax credits on R&D activities, not only for laboratory re- search but also for other types of innovation (including process improvements in manufacturing, production trials, and software integration). For example, new investments in radio-frequency identification (RFID) technologies for im- proving the supply chain may be candidates for R&D tax credits. 36 Incorpo- rating these tax credits into global supply chain development and restructuring decisions can have a significant impact on the bottom line. 37 This also includes intellectual property (patents, trademarks, trade secrets, trade names, copyrights, etc.), intellectual assets (such as codified knowledge, contracts, permits, licenses, and non-competes), and intellectual capital (hu- man capital, organizational capital, customer capital, distributor relations, and supplier relations). Different countries treat the valuation and returns on those assets very differently for regulatory, tax, and other purposes. While most media discussion is about corporate – or direct – taxation, indi- rect taxation is often more important. Indirect taxes are not levied directly on income but rather on ongoing business activity. They can take many forms – import duties, antidumping levies, safeguard measures, 38 value-added taxes (VAT), goods and services taxes (GST), excise/consumption taxes, agricultural 35 Kevin G. Rivette and David Kline, “Discovering new value in intellectual property,” Harvard Business Review , January-February 2000. 36 See e.g. Larry Shutzberg, RFID in the Consumer Goods Supply Chain: Mandated Compliance or Remarkable Innovation?, Industry White Paper, October 2004. . com/newsite/Online/RFID_IWP.pdf 37 See e.g. “Dupont Canada Develops Breakthrough Product at Half the Cost Thanks to Canada’s R&D Tax Credits,” Advanced Materials Draft Paper, Canadian Chemical Producers Associa- tion, September 10, 2002, Calgary, Alberta, Canada. 38 A World Trade Organization (WTO) member may take a “safeguard” action (i.e., restrict im- ports of a product temporarily) to protect a specific domestic industry from an increase in imports of any product which is causing, or which is threatening to cause, serious injury to the industry. For further details, see .
Globalization and Emerging Markets 61 Figure 2.10. Taking a Holistic View: Building Tax Issues into Optimization. levies, and stamp taxes. Having to deal with such complexities on a global scale, managers can easily become overwhelmed with the job of managing indirect taxes in a holistic, optimal manner.
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