Supply-chain challenge looms as part of new tax policy

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Proposals by President Trump and the Republican Party that seek to bring more production and jobs to the United States by changing tax policy could create benefits for manufacturers — but that is with the caveat that they start making supply chain adjustments now.

Audit, tax and advisory firm Grant Thornton says corporate CEOs are already sweating logistics, should their supply chains be disrupted by tough Republican proposals.

That could create challenges for company CFOs in addressing adjustments in the supply chain. But it could also create an opportunity to take advantage of changes if companies start “taking a hard look now,” the firm said in an analysis released earlier this month.

“This will be a game changer — a whole new set of rules. Companies need to start planning now so they’re not at a disadvantage when the new rules are put in place,” said Brian Murphy, tax partner at consumer and industrial products practice at Grant Thornton LLP.

Corporations perhaps face the greatest supply-chain challenge and opportunity with a proposal to eliminate tax deductions for imports while exempting exports from taxation, the company said.

“If you are a U.S. company and you no longer get a tax deduction for imports, it will be an incentive to focus and consolidate activity and sourcing in the U.S.,” said Douglas Wood, national managing principal of Grant Thornton’s international tax practice.

The firm also discussed possible changes that would come from shifting to a territorial tax system, as well as lowering the corporate tax rate.

“With Republicans pivoting from health care reform to tax reform, businesses shouldn’t wait, but use this time to consider the proposed changes and develop an action plan ahead of any new legislation,” Murphy said.

“Companies should model out the various proposals and, based on the results, ask how they should respond and react. What alternatives are there?” he said. “Keep in mind that under the new tax system, nimble companies that quickly adopt beneficial strategies can level the playing field or even leapfrog their competitors. This will be like hitting the reset button on your planning.”

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