Integrating fiscal issues in global distribution network design

Global distribution network design (GDND) is currently facing a phase of substantial changes, since logistics decisions need to consider also fiscal and legal aspects. Although the adoption of an integrated approach may create new opportunities for GDND, logistics and fiscal domains are based on different principles. Also, the potential trade-off between logistics and fiscal issues is still under-investigated in the academic literature. The purpose of this paper is to fill this gap by considering the location problem for a single distribution layer. In particular, the addressed problem refers to a multinational corporation (MNC) that considers shifting the optimal logistics location of a central warehouse (CW) in a close low-tax jurisdiction, although additional cross-border transports may occur. A three-phase methodology was adopted. First, two available cross-country logistics configurations were formalised and modelled by means of interviews with MNCs, as well as through literature review. The identified configurations imply a traditional or a bonded CW in a close low-tax jurisdiction. Then, a cost-based model was developed, combining logistics and fiscal cost functions, with the aim of maximising after-taxes bottom-line results. Finally, the model was applied to a MNC willing to distribute in the European market from a Swiss warehouse. A sensitivity analysis was performed, varying annual demand, product value, operating expenses, exchange rate and Swiss corporate tax rate. Results confirmed the impact of taxation on GDND, and highlighted the importance of including fiscal issues when designing global distribution networks. A cross-country logistics configuration may turn out as the most suitable, if the reduction in corporate income taxes overcomes the increase in logistics cost, and corporate tax rate emerges as the main element driving network design.