Tue, Jan 15, 2019 page12

• Firms must diversify supply chain risk: Ernst & Young

  AVOIDING TARIFFS: A strategy driven by cheap labor and short-term gains reflects a lack of risk diversification and exposes companies to unforeseen costs, Ernst & Young said

  • By Crystal Hsu / Staff reporter
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  Taiwanese companies should develop multiple supply chains, rather than relying heavily on operations in China or Southeast Asia, to avoid heavy tariffs on goods as global trade tensions linger and deepen, Ernst & Young Taiwan said yesterday.

  Taiwan could bear the brunt of tariff exchanges between the US and China due to the nation’s focus on the Chinese market for manufacturing activity, and could face further pressure if Europe and other nations enter the row, partner Lin Yi-shain (林宜賢) told a media briefing.

  A strategy driven by cheap labor and short-term gains reflects a lack of risk diversification and exposes companies to unforeseen costs in the long run as countries raise trade barriers, said Lin, a specialist on international taxes and transfer pricing services.

  Many Taiwanese companies are talking about relocating to Southeast Asia as their profits are being squeezed by extra tariff burdens imposed by Washington on Chinese goods, Lin said.

  However, that would simply be repeating the business model and the companies could run into the same predicament when the trade dispute sweeps across Southeast Asia, which is not unlikely, Lin said.

  Instead, local firms should create multiple supply chains, and assign more importance to political stability and rule of law when weighing investment destinations, Lin said, adding that investment protection should also sit high on the list of concerns.

  “We don’t see exporters in Japan or South Korea worry as much, because they have a better risk diversification strategy,” Lin said.

  Even Chinese firms are less susceptible to the US-China trade spat than local peers, thanks to their deployment beyond Asia, Lin said.

  Local firms could do the same and set up supply chains in Europe, the US and elsewhere around the globe to serve customers and diversify risks, Lin added.

  “Multiple supply chains would allow goods to benefit from free-trade agreements with the host nations and save on tariff costs, a factor that was underestimated in the past,” Lin said.

  Firms should also brace for greater difficulty with hiding assets overseas, as tax authorities are drafting rules that support the Common Reporting Standard, a global framework aiding the exchange of tax data.

  Several Ernst & Young clients are seeking help after Beijing adopted the standard to battle tax evasion, business tax and regulations compliance services partner Michael Lin (林志翔) said.

  The customers consider the proposed 10 to 12 percent tax rates unacceptable, but do not want to invest in Taiwan’s “five plus two” innovative industries plan to qualify for capital repatriation, Michael Lin said.

  Companies must also meet tougher requirements regarding labor disputes, as legal revisions have shifted the burden of proof to them, he said.

  They must provide evidence that employees are not working when differences arise regarding overtime pay, the company said.
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