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CaseStudy Introduction |
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Successful
Oracle Implementations Using Commissionaire and Buy-Sell
Structures.
Many of our case studies concern American multinational
enterprises implementing one global Oracle database and
streamlining the commercial operations within the European
and Asian market places.
Many Oracle implementations prior to R11 have been based
on multiple parallel implementations for different trading
regions (Americas, Europe, Asia) or countries. With R11
and the emphasis on single instance efficiency, a more
synchronized implementation approach is needed in order
to realize the cost savings and accommodate diverging
business and legal requirements. A successful Oracle installation
across multiple countries needs to address the complications
of different languages, currencies, and different legal
and fiscal requirements. In addition, the Oracle organizational
set-up must represent the business and legal structure
of the enterprise and its subsidiaries.
Most multinational enterprises have established ways to
optimize the trading relationships between their different
subsidiaries. Central research and production facilities,
distribution and warehousing, shared service centers for
technical support, marketing, customer service and finance
are often providing resources across different entities
and countries. These relationships need to be represented
in "Inter-company Transactions". Inter-company
transactions represent and document a critical part of
the revenue and expense stream for each entity and will
influence the tax liabilities in each country substantially.
Commissionaire and Buy-Sell Relationships
Many of our clients are US based enterprises operating
subsidiaries in many European and Asian countries. These
local companies are the customer-facing entities in each
country. In order to realize substantial organizational,
administrative and tax advantages these companies have
organized their subsidiaries as "Commissionaires"
where possible. In other cases, the trading relationships
are standard buy-sell arrangements with additional provisions
for the centralized services in research, marketing, distribution
and finance. The local companies maintain a minimal staff
to support the administrative responsibilities of the
company and some local marketing activities.
Commissionaire agreements establish the concept of "Deemed"
inter-company purchases and sales on which revenue and
taxation are evaluated. The locally registered subsidiaries
enter into Commissionaire agreement with the "Principal"
which allows them to conduct the customer facing business
in their own name, while all inventory, operational, and
sales risks remain with the Principal. This model allows
the determination of revenue for the subsidiary as an
agreed commission rate (the discount rate for the Inter-Company
trade). A set percentage of the customer sale is left
with the local selling entity.
The details of the Commissionaire agreements can vary
widely and different country specific regulations may
affect the structure and required transactions to be recorded.
In some countries individual inter-company purchase orders
are needed for each sales transaction, whilst in others
a monthly summary is sufficient. Other requirements may
be to assign the customer receivables to the Principal
and to record "deemed" inventory receipts at
the local entity.
At the core, however, is the commission or discount rate,
which provides the local revenue. The local revenue covers
the operating expenses of the local company and produces
a fair proportion of profit for local income purposes.
The Commissionaire approach also needs to be incorporated
for compliance with local sales tax requirements. In Europe
and Asia these are generally value added tax (VAT) or
goods and service tax (GST). The customer sale is made
by the local entity. It needs to show the tax appropriate
for the selling entity’s location and will depend
on where the goods are shipped from and delivered to.
The inter-company sale is made showing the tax of the
"Principal’s" country and location, again
depending on ship-from and ship-to location.
Although Buy/Sell and Commissionaire Agreements are recognised
as effective and Tax efficient Trading Models, the full
benefits are often not realised because of the effort
involved in processing and reconciling inter-company activity.
Virtual Trader provides extensive functionality that makes
this inter-company activity flexible and effectively transparent. |
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