Shock to the System: Key International Tax Issues Associated with Supply Chain Disruption, Journal of International Taxation

The COVID-19 crisis has highlighted the challenges a multinational enterprise (“MNE”) faces when global supply chains are disrupted. Decisions must be made quickly when a distribution center is temporarily shut down, when employees in key supply chain roles cannot perform their functions in their expected locations and when the source of raw materials or components changes from one country to another.

Tax is an important component to an efficient global supply chain. Sound international tax planning consistent with global standards ensures that the proper amount of income is allocated to the functions, risks and assets employed by the supply chain and also ensures that no income tax arises where functions performed in a location do not rise to the level of taxable nexus. Moreover, indirect taxes (e.g., VAT) depend directly on how goods and services flow between countries.

The COVID-19 crisis has created a shock to the global supply chain system. This article discusses some of the key international tax challenges associated with this disruption.