Global distribution network design (GDND) is currently facing a phase of substantial changes, since logistics decisions need to consider also fiscal and legal aspects. Although the adoption of an integrated approach may create new opportunities for GDND, logistics and fiscal domains are based on different principles and frictions may arise, creating distortions in the optimal logistics configuration and eventually involving cross-country flows. This issue is still under-represented in the academic literature, despite the rising debate in the practitioners’ community. The purpose of this paper is to fill this gap by investigating the available configurations in GDND, focusing on a location problem for a single distribution layer. A multinational corporation (MNC) may consider shifting the optimal logistics location of a central warehouse (CW) in a close low-tax jurisdiction, although additional cross-border transports may occur. A three-phase methodology was adopted. First, available cross-country logistics configurations were formalised and modelled by means of interviews with MNCs. Then, a cost-based model was developed, combining logistics and fiscal cost functions, with the aim of maximising after-taxes bottom-line results. The model was applied to a MNC willing to distribute in the European market from a Swiss warehouse. A sensitivity analysis was performed, varying annual demand, product value, operating expenses, exchange rate and Swiss corporate tax rate. Results confirmed the impact of taxation on GDND, and highlighted the importance of including fiscal issues when designing global distribution networks. A cross-country logistics configuration may turn out as the most suitable, if the reduction in corporate income taxes overcomes the increase in logistics cost, and corporate tax rate emerges as the main element driving network design.

Integrating fiscal issues in global distribution network design

Prataviera L. B.;Perotti S.;Tappia E.;Fumero F.
2018-01-01

Abstract

Global distribution network design (GDND) is currently facing a phase of substantial changes, since logistics decisions need to consider also fiscal and legal aspects. Although the adoption of an integrated approach may create new opportunities for GDND, logistics and fiscal domains are based on different principles and frictions may arise, creating distortions in the optimal logistics configuration and eventually involving cross-country flows. This issue is still under-represented in the academic literature, despite the rising debate in the practitioners’ community. The purpose of this paper is to fill this gap by investigating the available configurations in GDND, focusing on a location problem for a single distribution layer. A multinational corporation (MNC) may consider shifting the optimal logistics location of a central warehouse (CW) in a close low-tax jurisdiction, although additional cross-border transports may occur. A three-phase methodology was adopted. First, available cross-country logistics configurations were formalised and modelled by means of interviews with MNCs. Then, a cost-based model was developed, combining logistics and fiscal cost functions, with the aim of maximising after-taxes bottom-line results. The model was applied to a MNC willing to distribute in the European market from a Swiss warehouse. A sensitivity analysis was performed, varying annual demand, product value, operating expenses, exchange rate and Swiss corporate tax rate. Results confirmed the impact of taxation on GDND, and highlighted the importance of including fiscal issues when designing global distribution networks. A cross-country logistics configuration may turn out as the most suitable, if the reduction in corporate income taxes overcomes the increase in logistics cost, and corporate tax rate emerges as the main element driving network design.
Proceedings of the 23rd Summer School Francesco Turco
978-88-908649-0-2
Global distribution network design, fiscal issues, cross-country flows, after-tax profit maximisation, analytical model
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11311/1061001
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