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    EarthCo SDN

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    Aik Han See
    The CFO of EarthCo, an agriculture company, has requested advice on addressing supply chain issues and associated tax implications. Specifically, the CFO seeks guidance on evaluating building an in-house logistics function versus acquiring mid-sized logistics companies, understanding withholding tax consequences of different supply chain models, assessing the tax impact of establishing operations and fixed assets in a new country, and navigating international tax regulations like BEPS. The presentation covers these key matters, additional relevant factors like operational costs and acquired companies' contracts, and how young tax professionals can help through tax analysis, international tax expertise, financial modeling, and regulatory compliance assistance.

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    EarthCo SDN

    Uploaded by

    Aik Han See
    35 views5 pages
    The CFO of EarthCo, an agriculture company, has requested advice on addressing supply chain issues and associated tax implications. Specifically, the CFO seeks guidance on evaluating building an in-house logistics function versus acquiring mid-sized logistics companies, understanding withholding tax consequences of different supply chain models, assessing the tax impact of establishing operations and fixed assets in a new country, and navigating international tax regulations like BEPS. The presentation covers these key matters, additional relevant factors like operational costs and acquired companies' contracts, and how young tax professionals can help through tax analysis, international tax expertise, financial modeling, and regulatory compliance assistance.

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    EarthCo Sdn

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    The CFO of EarthCo, an agriculture company, has requested advice on addressing supply chain issues and associated tax implications. Specifically, the CFO seeks guidance on evaluating building an in-house logistics function versus acquiring mid-sized logistics companies, understanding withholding tax consequences of different supply chain models, assessing the tax impact of establishing operations and fixed assets in a new country, and navigating international tax regulations like BEPS. The presentation covers these key matters, additional relevant factors like operational costs and acquired companies' contracts, and how young tax professionals can help through tax analysis, international tax expertise, financial modeling, and regulatory compliance assistance.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    35 views5 pages

    EarthCo SDN

    Uploaded by

    Aik Han See
    The CFO of EarthCo, an agriculture company, has requested advice on addressing supply chain issues and associated tax implications. Specifically, the CFO seeks guidance on evaluating building an in-house logistics function versus acquiring mid-sized logistics companies, understanding withholding tax consequences of different supply chain models, assessing the tax impact of establishing operations and fixed assets in a new country, and navigating international tax regulations like BEPS. The presentation covers these key matters, additional relevant factors like operational costs and acquired companies' contracts, and how young tax professionals can help through tax analysis, international tax expertise, financial modeling, and regulatory compliance assistance.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 5

    EarthCo Sdn. Bhd. (EarthCo) is a privately-owned agriculture company incorporated in Malaysia.

    The
    company operates in three key divisions: (1) developing new varieties of core agricultural products (e.g.,
    tea and cocoa) that are more robust (e.g., being drought tolerant) to the impacts of climate change via
    genetic engineering (2) developing ecofriendly pesticides and fertilizers using adjacent technologies, and
    (3) working with farmers to develop more sustainable agricultural practices.

    EarthCo has a core team of scientists based in Malaysia, who leads a global network of both direct
    employees as well as independent contractors. EarthCo maintains a large secondary research team in
    Country X as well as additional smaller teams with local expertise in Countries Y and Z. The research
    leaders (leading the team of scientists) from Malaysia make frequent trips to all these other research
    facilities but most frequently to Country X’s facility which includes a laboratory and farms owned by
    EarthCo.

    Whilst growth has been strong in recent years, the company has struggled with its supply chain. EarthCo
    has struggled to find reliable third-party logistics solutions to deliver its products to its global customers.
    Increasing prices, inconsistent reliability and long delays have all had negative impacts on profits as well
    as brand reputation.

    The Chief Financial Officer (CFO) of EarthCo has asked you to help them with a feasibility study on how
    best to overcome their recent supply chain issues. The company’s management team is considering
    building an in-house logistics and warehousing function. EarthCo’s management team likes the idea of
    having complete control over the cost structure, and building the function out of a new internal
    organization. However, they have also had informal discussions with a few mid-sized logistics companies
    that may be open to acquisition. Given these two potential routes to addressing their supply chain
    issues, the management team is keen to understand all the associated tax impacts that would come with
    such a change. That said, while your focus is on tax, you have also been asked to consider non-tax related
    matters that may impact the planning for EarthCo’s new logistics unit.

    Other information

    • The company does not grow any of its own food products. Instead, it works with unrelated farmers to
    grow the EarthCo developed varieties which are then purchased by EarthCo. EarthCo currently uses third
    party logistics companies for transport and warehousing but is considering developing in-house logistics
    as they are facing substantial fee increases in shipping and warehousing.

    • EarthCo primarily sells its products to third party retailers in major markets across the world.

    • The company has substantial sales to countries without tax treaties with Malaysia and is trying to
    navigate what impact the current and future operating models may have on withholding tax
    implications.

    • The company has expressed an interest in basing their new logistics team in Country A due to its
    central location to the countries where they work with the largest number of farms. However, EarthCo
    currently does not have any operations in Country A. While the actual number of employees in Country
    A may be quite small, they will own substantial fixed assets in Country A.
    • The company’s growth has been driven by substantial R&D investment and so, while revenues are
    strong, margins are relatively small. As a result, the company is mindful that investing in an internal
    logistics organization may result in net operations losses in the near term.

    • Both potential acquisition targets have long-term contracts with other customers that would have to
    be honoured, as well as geographical footprints far beyond EarthCo’s.

    • The CFO has also read about the changes in the international tax and regulatory landscape. She
    indicates that she does not have a full grasp of them. She does not understand the OECD Base Erosion
    Profit Shifting (BEPS) model and the emphasis on BEPS 2.0. She would like to understand what the
    impact is and the most relevant matters to focus on.

    Requirement:

    The CFO of EarthCo has requested for a meeting with you to discuss the issues raised.

    Prepare a presentation on the issues raised by the CFO, covering:

    a) The specific matters on which the CFO would like your advice

    b) Any other matters which you think are relevant

    c) How Young Tax Professionals (YTPs) may be able to help

    Ladies and gentlemen,

    I'm delighted to be here to discuss the critical matters that EarthCo is currently facing.
    The challenges you've outlined are complex, involving both supply chain issues and
    important tax considerations. My goal today is to provide comprehensive advice that
    addresses both these areas and considers non-tax factors that could impact EarthCo's
    decision-making. Let's dive into the specific matters the CFO has raised:

    a) Specific Matters the CFO Would Like Advice On:

    1. Supply Chain Solutions: EarthCo is considering building an in-house logistics


    and warehousing function as well as exploring the option of acquiring mid-sized
    logistics companies. We'll evaluate the feasibility and benefits of each approach,
    including cost control, reliability, and brand reputation.
    2. Withholding Tax Implications: EarthCo's substantial sales to countries without
    tax treaties with Malaysia require careful consideration of withholding tax
    implications. We'll provide insights into the tax consequences of different supply
    chain models, especially for the new logistics unit.
    3. Geographical Expansion and Fixed Assets: The CFO is interested in basing the
    new logistics team in Country A, which currently has no EarthCo operations. We'll
    explore the tax implications of establishing fixed assets in this new jurisdiction,
    including local compliance requirements, corporate tax rates, and potential tax
    incentives.
    4. BEPS Model and BEPS 2.0: The CFO has expressed a lack of understanding
    regarding the OECD Base Erosion Profit Shifting (BEPS) model and the emerging
    BEPS 2.0. We'll explain the key aspects of these models, their potential impact on
    EarthCo's operations, and suggest relevant strategies for compliance.

    b) Additional Relevant Matters to Consider:

    1. Operational Costs and Profitability: Given EarthCo's concern about potential


    net operational losses in the short term for building an in-house logistics
    organization, we'll explore strategies to mitigate these losses and ensure long-
    term profitability and cost control benefits.
    2. Long-Term Contracts and Geographical Footprints in Acquisition: Acquiring
    mid-sized logistics companies with long-term contracts and expansive
    geographical footprints requires careful evaluation. We'll discuss the implications
    of honoring these contracts and assess the alignment of geographical footprints
    and potential synergies with EarthCo's existing operations.
    3. Supply Chain Reliability and Brand Reputation: EarthCo's current supply chain
    issues have had negative impacts on profitability and brand reputation. We'll
    explore how supply chain solutions may improve these aspects and lead to
    enhanced customer satisfaction.
    4. Regulatory Landscape Changes: We'll provide an overview of the international
    tax and regulatory changes, focusing on their potential impact on EarthCo's
    operations. We'll address the CFO's questions regarding the BEPS model and its
    significance, along with any other relevant tax updates.

    c) How Young Tax Professionals (YTPs) May Be Able to Help:

    1. Tax Analysis and Optimization: YTPs can conduct thorough tax analyses,
    considering various scenarios for supply chain solutions, acquisitions, and
    geographical expansions. They can identify tax optimization strategies to
    minimize EarthCo's tax exposure while achieving its supply chain goals.
    2. International Tax Expertise: YTPs can navigate complex international tax
    regulations, helping EarthCo understand withholding tax implications, compliance
    requirements, and potential risks in various jurisdictions.
    3. Financial Modeling and Operational Insights: YTPs can develop financial
    models to project the impact of different supply chain options on EarthCo's
    financials, aiding in decision-making. Their insights into operational efficiencies
    and cost-saving measures will assist EarthCo in optimizing its supply chain.
    4. Regulatory Compliance Assistance: YTPs can keep EarthCo updated on the
    evolving international tax landscape, providing guidance on BEPS-related matters
    and other relevant regulatory changes.

    In conclusion, EarthCo's supply chain issues are multi-faceted, encompassing tax


    considerations, non-tax factors, and a rapidly evolving regulatory landscape. By
    collaborating with Young Tax Professionals, EarthCo can make well-informed decisions
    to overcome supply chain challenges, optimize operations, and navigate the complex
    global business environment. We're committed to assisting EarthCo in achieving its
    goals while maintaining its financial health and reputation.
    Hi, Iam See Aik Han, from University Tunku Abdul Rahman and taking accounting course. I
    want to present today is Advising on Supply Chain Issues and Tax Implications. First is the
    Specific Matters the CFO Would Like Advice On. There are four specific matters which are
    Supply Chain Solutions, Withholding Tax Implications, Geographical Expansion and Fixed
    Assets and BEPS Model and BEPS 2.0. For Supply Chain Solutions In addition to looking at the
    possibility of acquiring mid-sized logistics firms, EarthCo is considering establishing an in-house
    logistics and warehousing role, as well as acquiring mid-sized logistics companies. We'll assess
    the feasibility and benefits of each technique, taking into account cost control, dependability, and
    brand reputation. For Withholding Tax Implications, EarthCo's significant sales to nations that do
    not have tax treaties with Malaysia necessitate careful consideration of withholding tax effects.
    We'll share insights into the tax implications of various supply chain models, particularly for the
    new logistics unit. For Geographical Expansion and Fixed Assets, The CFO wants the new
    logistics team to be based in Country A, which currently has no EarthCo operations. We'll talk
    about the tax ramifications of establishing fixed assets in this new jurisdiction, such as local
    compliance requirements, corporate tax rates, and potential tax breaks. For BEPS Model and
    BEPS 2.0, The CFO has voiced confusion over the OECD's Base Erosion and Profit Shifting
    (BEPS) methodology and the developing BEPS 2.0. We'll go over the essential features of these
    models, their possible impact on EarthCo's operations, and applicable compliance procedures.
    Next is the Additional Relevant Matters to Consider. First is Operational Costs and Profitability,
    Given EarthCo's worry about potential short-term net operational losses from developing an in-
    house logistics organization, we'll look into ways to offset these losses while ensuring long-term
    profitability and cost control benefits. The second is Regulatory Landscape Changes, We'll give
    you an overview of worldwide tax and regulatory changes, with an emphasis on how they might
    affect EarthCo's activities. We'll respond to the CFO's inquiries on the BEPS model and its
    significance, as well as any other relevant tax developments. Next, How Young Tax Professionals
    (YTPs) May Be Able to Help. They can provide Tax Analysis and Optimization. YTPs may
    undertake comprehensive tax analysis, taking into account numerous scenarios for supply chain
    solutions, acquisitions, and geographic expansion. They can devise tax optimization solutions to
    reduce EarthCo's tax exposure while meeting its supply chain objectives. Regulatory Compliance
    Assistance, YTPs can keep EarthCo up to date on the changing international tax landscape,
    offering guidance on BEPS and other important legislative developments .

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