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When tax meets technology

Tax implications of Industry 4.0

About Report

“When tax meets technology——Tax implications of Industry 4.0” was compiled by Deloitte UK manufacturing indirect tax team, translated by Deloitte China Technology, Media & Telecommunication industry tax team, and jointly released by Deloitte China industry 4.0 center and Technology, Media & Telecommunication industry team. The article examines the tax implications of Industry 4.0 as organizations seek to use advanced technologies to improve operations or drive business growth. This article disclosed three key transformational plays, and illustrated four key action points regarding the management of tax by manufacturing business and implementation of Industry 4.0 technologies.

Viewpoints / key findings

The Industry 4.0 tax challenge

Changes to supply chains, the introduction of new products or services, additional capital expenditure, or product customization can have ramifications on the tax position. By understanding the shifts, roles, and influence points created by Industry 4.0, businesses can create a tax strategy and framework to successfully navigate the new landscape. Here we illustrate the potential tax impacts of Industry 4.0 by examining the three key transformational plays that underpin business growth and operations.

Factory: Creating a digital link between operations and information technology

  • Direct taxes: Availability of tax credits; Pricing of intercompany supplies, and application of transfer pricing models
  • Indirect taxes: Recovery and management of VAT incurred on purchases (including cash flow); VAT treatment of intragroup recharges; Complexity of duty classification for specialist technology equipment
  • Employment taxes: Flexing remuneration and reward packages, and associated tax issues

Support: Automating and scaling aftermarket operations

  • Direct taxes: Possibility of creating additional permanent establishments; Changes to corporate income tax footprint; Creation of taxable presence through stock holdings
  • Indirect taxes: Potential creation of additional indirect tax obligations in new territories; Consideration of whether a supply is one of goods or services (which have different VAT rules); Determination of reporting requirements; Impact on valuation of supplies for duty purposes; Export control implications
  • Employment taxes: Short-term and long-term mobility of employees creating new compliance obligations

Customers: Connecting and integrating in new ways

  • Direct taxes: Clarity on where supplies are being made to determine effective tax rate on profits; Considering where operations are centered (e.g., in a low-tax jurisdiction)
  • Indirect taxes: Different VAT treatment for increased or new supplies of services; Additional VAT registration requirements for services supplied electronically to consumers; More challenging determination of classification, valuation, and origin of goods for duty purposes due to increased customization
  • Employment taxes: Take value of additional complementary services

There are a few key action points businesses could consider from a tax perspective as they navigate if, how, and when to implement Industry 4.0 technologies.

  • Consider the tax position upfront
  • Ensure the operating units within a business are communicating effectively
  • Consider whether the business wishes to take an active role in shaping tax policy
  • Be aware of other disruptors impacting taxation
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