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Adopting an effective management framework

During the design of the operating model, attention should be given to the indirect tax implications of the more centralized structure. Unexpected problems may arise if the indirect tax landscape has not been mapped out completely and if all new indirect tax requirements have not been considered. The change toward a centralized model may result in the central company having to obtain import and export licenses, which may require appointing an indirect tax representative in multiple jurisdictions. Existing incentives could be lost without proper adjustment of the facts associated with them. Customs rules, such as “first sale for export,” may no longer be available when companies are removed from the supply chain to allow one central company to own the goods throughout the supply chain. In addition, many jurisdictions will disallow for non-established companies to have the required import, export and regulatory licenses. Often the central company will be required to register for VAT/GST, creating a permanent establishment for direct taxes. The list of potential issues can be endless, effectively creating too many practical problems for the centralized model to be implemented without the necessary indirect tax adaptations. The indirect tax issues should be addressed up front. Given ample time to implement, most issues can be resolved either by adapting the operating model to better cater for indirect tax or by receiving up-front approval from tax authorities and regulatory bodies.