sustainable cost optimization (sco) for regional hqs and shared service centers in switzerland...

Sustainable Cost Optimization (SCO)

for regional HQs and Shared Service Centers in Switzerland

Schaffhausen, 11.9.2014

in association with

© 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. Printed in Switzerland. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

2

Introduction

Fuelled by a strong Swiss Franc and a strong economy direct and indirect expenses are increasing for key functions

Strong Swiss FrancReal Estate

Trend for Staff growth at reg. HQs

Changes in corp. taxation

High ProductivityClusters

Well trained workforce Top Infrastructure

International Business Environment, etc.


3

Typical HQs and SSC functions and possible optimization opportunites

OperatingModel

■ IT Supplier / Governance

■ IT Infrastructure

■ Data & Records Management

IT and Management Information

Systems

■ Professional Service Suppliers

■ SCM Performance

■ Vendor Management

Procurementand

Supply Chain

■ Finance Organisational Optimization

■ CPM Solutions

■ Benchmark with Outside Providers

■ Reporting Cycle Review

■ Treasury Management

■ Governance, Risk & Compliance Finance Function

■ Indirect Tax Management

■ Custom & Trade Management

■ Contract + Tax Compliance

■ Transfer Pricing

■ Tax & Legal Compliance

■ Tax Planning, Tax Rulings

■ Legal Entity Maintenance & Rationalisation

Tax / Legal Function

■ Alternative Locations

■ Facility Management

■ Lease Review

■ Facilities UtilisationReal Estate /

Facilities

■ Workforce Optimization

■ Training & Education

■ Visa / Work Permits

■ Salary Benchmarks

■ Payroll

■ Expat Packages

■ HR Operations

Human Resources


4

Human Resources

InternationalAssignment Policy

Local vs ExpatCosts

Expat cost USD200-250k

Standard Office Procedures

Benefits Optimization

Human Resources


5

Procurement Management

In house Outsourcing

Vendor Management

Process Improvement

Volume Discounts

Education

Housing & Shipping

Fleet Management

Telecom

Procurementand Supply

Chain


6

Real Estate and Facilities

RenegotiationsLease

AgreementRegulations

Utilization Ratios

Optimization

Support

Services

Facility

Management

Property

Services

Infra

Services

Cleaning

Services

Security

Services

Real Estate /Facilities


7

Finance Function

Transactions Reporting

s

Analysis

ReportingAnalysis

Transactions

Optimization of Finance function

Centralization - Decentralization

Actions performed in a Pharma multinational

■ Data entry – 4 different systems

■ 100’s of Excel spreadsheets

■ Data quality – double/triple transactions

Finance Function


8

IT and Management Information Systems

IT – Strategy

Procurement IT Equipment

Set-up PC, Monitors, i-phones…

Set-up Server Architecture (incl. cloud computing)

Capacity Planning (Storage, Racks,…)

Helpdesk

Infrastructure (Security, HVAC, Cabling)

Set-up of Network

Actions performed in a multinational company in the Information Industry

■ Server consolidation

■ Network improvement (routers)

■ Vendor negotiations (printer, Laptop and other IT equipment)

■ Efficient back-up solutions (cloud)


Systems


9

Cross-functional analysis

■ Identify benefits of current tax / legal set up in terms of existing tax rulings, ETR, risks and efficiencies

■ Identify main administrative costs (tax & regulatory compliance costs, legal expense, etc.) and its improvement potential

■ Assess legal / tax structure in regards to maintain / increase competitiveness and profitability

■ Assess if new regulations (e.g. requirements for principal structures, BEPS, Corporate Tax Reform, CbC Reporting) have been proactively considered

■ Evaluate usage of Tax Technology Tools

Tax and Legal Model



10

Analysis

■ Analyze organizational / process charts and applied tax planning model

■ Indentify quick cost savings wins and strategic cost optimization opportunities

■ Review tax-set up

Results

■ Heat map with cost drivers for main functions

■ Action plan for immediate and strategic cost saving opportunities

■ Gap analysis of current situation against projected strategies in tax rulings highlighting areas of improvement

Fact finding

■ Interview a limited number of key individuals

■ Review functional models for key functions

■ Collect tax rulings

Project Planning

■ Analyze governance model and strategy

■ Prepare a custom review plan based on cost structure, tax model and projected benefits

[…]

Our approach towards sustainable cost optimization


11

Example of heat map

Highest priority

Middle priority

Important

Low

Key:Reporting Guidelines

1

23

4

5

6

8

7

14

12

13

11

109

Charts of account

Treasury

System

Compensation

Payroll

Training/Education

Data Management

11IT infrastructure

IT vendor management

109

321

Tax Planning

Contract compliance

Transfer pricing model141312

765

4 8


Finance Function

Human Resources


Systems


12

Action Plan

Functions Documents Actions

Human Resources ■ Review of Guidelines

■ Compensation and Benefits

■ Relocation process

■ Assess processes

■ Benchmark

■ Best practice

Procurement ■ Review of vendor contracts ■ Identify savings potential based on other deals

Finance ■ Data Flow

■ Roles and Responsibilities

■ Systems Support (excel?)

■ Identify process improvements

Real Estate/Facilities ■ Lease agreement

■ Floor plans

■ Assess potential lease renegotiation

■ Assess utilization rate

■ Facility Management organization

IT Information Systems ■ Assess IT architecture

■ Vendor agreement

■ Provide alternatives

■ Benchmark agreements


13

Savings overview (1-1.5 years)

Area CHF Cost Savings

Optimization of HR cost 1.5 M 10%

Relocation (housing & shipping) 0.3 M 40%

Telecom 0.1 M 20%

Education 0.1 M 10%

Building cost (inclusing furniture) 2 M 20%

Total 4 M 15%


14

Example of gap analysis

Topic Projected Current Tax status Tax rateTax relevant? Risk

Worst case tax rate

Area of improvement

Probable tax rate

Employees 50 5 Full tax holiday for 10 years

0 Yes Abolishment of tax holiday and claw back

12 - 24 Add more people or obtain tax ruling

0 - 10

Investments 20 MCHF in production facility

0 CHF Full tax holiday for 10 years

0 Yes Abolishment of tax holiday and claw back

12 - 24 Invest or obtain tax ruling

0 - 10

Functions European CEO, CFO, COO, Heads of Procurement, Marketing, Quality Control, …

Head of Marketing

Full tax holiday for 10 years

0 No n/a 0 Add more people or obtain tax ruling

0

Business Model

Principal structure with limited risk distributors

IP Company


0 No n/a 0 Change business model or obtain tax ruling

0

Profit 10 MCHF pa 500 MCHF pa


0 Yes No application of tax holiday on excess profit

12 - 24 Obtain tax ruling

5 - 10


15

Typical HQs and SSC functions and possible optimization opportunites

OperatingModel

■ IT Supplier / Governance

■ IT Infrastructure

■ Data & Records Management


Systems

■ Professional Service Suppliers

■ SCM Performance

■ Vendor Management

Procurementand

Supply Chain

■ Finance Organisational Optimization

■ CPM Solutions

■ Benchmark with Outside Providers

■ Reporting Cycle Review

■ Treasury Management

■ Governance, Risk & Compliance

Finance Function

■ Indirect Tax Management

■ Custom & Trade Management

■ Contract + Tax Compliance

■ Transfer Pricing

■ Tax & Legal Compliance

■ Tax Planning, Tax Rulings

■ Legal Entity Maintenance & Rationalisation


■ Alternative Locations

■ Facility Management

■ Lease Review

■ Facilities UtilisationReal Estate /

Facilities

■ Workforce Optimization

■ Training & Education

■ Visa / Work Permits

■ Salary Benchmarks

■ Payroll

■ Expat Packages

■ HR Operations

Human Resources


André GuedelHead International Market DevelopmentKPMG AGBadenerstrasse 172, 8026 Zürich

T: +41 (0) 58 249 28 24 M: +41 (0) 79 696 75 11E: [email protected]

Herbert SterchiManaging PartnerHerbert Sterchi ConsultingZürichstrasse 96004 Luzern

M: +41 (0) 79 448 31 28E:[email protected]

Thomas LinderDirectorInternational Corporate TaxKPMG AGBadenerstrasse 172, 8026 Zürich

T: +41 58 249 54 58M: +41 (0) 79 597 67 72E: [email protected]