Integrated Reporting practices based on findings from 100 JSE-listed companies

I have provided an introduction below to a publication (which applies to all members of the C-Suite) prepared by the Deloitte Integrated Reporting and Sustainability team, which discusses the state of Integrated Reporting practices in South Africa. The publication contains the key findings of the empirical research conducted on 100 companies listed on the Johannesburg Stock Exchange.

The analysis covered 7 subjects, 58 principles and 160 questions seeking to assess actual performance against good practice. The publication includes practical observations on certain topical subjects which appear to be a challenge for companies. I have provided an excerpt below and will send you the full report upon request.

If you would like to discuss the contents of the report in more detail, please contact Bertie Loots (bloots@deloitte.co.za), Nina le Riche (nleriche@deloitte.co.za), Johan Erasmus (jerasmus@deloitte.co.za) or Jaco Pretorius (japretorius@deloitte.co.za).

Integrated Reporting: Navigating your way to a truly Integrated Report

Integrated Reporting is the new kid on the block … and like many new kids there are great hopes for its future including the ultimate achievement of embedding a strategy that preserves long-term value, simplifying reporting and adding more meaningful information to a wide range of users. But where does the idea come from? What is it trying to do? And what is the current state of development?

And before you think this is just for the accountants, think again. Integrated Reporting aims to incorporate everything from strategy through to risk management; from financial reporting to the inclusion of usage of other capitals (think societal and environmental impacts). And it aspires to meet the needs of a wider group of stakeholders – employees, customers, suppliers and others. So everyone associated with an organisation in a significant way is likely to be touched by it.

At Deloitte, we see Integrated Reporting as enabling a process which enhances and preserves long-term sustainability in all its dimensions, without unduly sacrificing short-term performance. The Integrated Report is in turn an annual report that comprises a holistic and integrated representation of the entity’s efforts to enhance and preserve long-term sustainability in all its dimensions, without unduly sacrificing short-term performance.

Deloitte has released its second quarterly report on the state of Integrated Reporting in South Africa. The report reveals that Integrated Reporting standards have been adopted by more than half of South Africa’s listed companies. Although it is now necessary for these JSE-listed companies to include a statement of compliance with the principles set out in the King Code on Governance Principles (King III) in their annual reports, many companies are still scoring surprisingly low on corporate governance matters.

Download the publication . . . .  Integrated Reporting – Navigating your way to a truly Integrated Report

We value your comments and feedback. If you have any questions, do not hesitate to contact us!

Filed under: Executive Leadership, Finance, Information Technology, Risk Management, Talent & Human Capital, Deloitte, financial reporting, governance, Governance Principles, integrated reporting, JSE, JSE-listed companies, King III, South Africa, sustainability

Why does strategic sourcing not enjoy the focus it deserves?

Supply Chain Management – Unlocking the true value of your time

by Tania Davey-Smith – Deloitte

If you would like a more detailed discussion, feel free to contact Tania  at tdavey-smith@deloitte.co.za

Strategic sourcing of non-core products – a treasure waiting to be discovered

Strategic sourcing is a management process used to systematically assess purchasing requirements across a company and identify opportunities, both internal and external, for total cost reductions. This process is widely practised within organisations that require large volumes of raw materials to effect their manufacturing operations. This is normally the largest component of cost of sales and enjoys executive focus to drive costs down.

However, organisations often overlook the cost reduction opportunities to be found in some of the other cost-of-sales items, possibly because they are not the big cost items. These could include packaging, clearing and forwarding, and maintenance spare parts. Even further removed on the radar of cost reduction opportunities, are expense items such as marketing, printing, travel, legal services, IT and professional services. Yet, these expense items, individually and collectively, add up to a significant portion of overall expenses.

Why does Strategic Sourcing not enjoy the focus it deserves?

Procurement has traditionally been tasked to process purchase orders effectively, negotiate contracts and expedite delivery. The procurement function has been treated as an administrative function (and therefore acted as such) and not as a strategic partner able to drive down costs in a meaningful manner. The reason for this is possibly that the procurement leader has not enjoyed the executive status that would give him the clout he needs. It is also true that procurement practitioners are often not closely aligned with the needs of the business, nor do they have an intricate understanding of the commodities they are purchasing. More often than not, corporate procedures governing the sourcing and purchasing processes are not adhered to, resulting in maverick spend by line managers who do not have the patience to wait for Procurement to do the job and who believe they know better (and probably do).

We have accumulated statistics over decades, having assisted our clients in strategic sourcing projects. We are therefore able to state confidently that strategic sourcing does work. In our experience, organisations tend to overlook the importance of the role of a Strategic Sourcing manager, and this role – more often than not – does not exist. This results in procurement practitioners being sucked up in the daily demands of their jobs and in keeping their internal customers satisfied. There is no time to research the supply market, let alone do site visits at supplier sites, get to know your supplier, do price and quality comparisons and move to the next level of effective sourcing, which is to understand and negotiate supplier contracts that will reduce your own risk and cost of ownership.

Similarly, procurement practitioners seldom have the time or skills to develop a deep understanding of the commodities they source. Whether these commodities are core raw material products or non-core commodities such as legal or IT services, it is necessary to understand the cost drivers of each commodity in order to effectively procure. Every item that is sold has undergone a process of production, during which value and cost were added. A deeper understanding of the value chain that underpins each product or service, and the drivers of cost in that value chain, will enable a procurement professional to make meaningful comparisons between possible suppliers.

The table below provides an indication of potential savings companies can achieve:

We recommend that you work with an organisation  that has experience in sourcing indirect categories, which enables them to provide category-specific strategies and market insights.

You also need to develop a deep understanding of the supply industry, including the cost drivers of the commodity, so as to enable meaningful comparisons between suppliers. A key element of strategic sourcing is the establishment of cross-functional sourcing teams who are collectively able to develop specifications for products and services, as well as adjudicate tenders, bids and quotes. Strategic sourcing continues to unlock meaningful value to organisations, and it needs to expand its reach from core spend items to the non-core commodities – a treasure waiting to be discovered.

For more information contact Tania Davey-Smith  –  tdavey-smith@deloitte.co.za; Gitesh Mistry  –  gmistry@deloitte.co.za;  Lerato Sithole  –  lesithole@deloitte.co.za or Riana Bredell  –  rbredell@deloitte.co.za

Please provide comments and share! 

Filed under: Executive Leadership, Finance, Industry And Consumer, cost reductions, Deloitte, procurement, purchasing, strategic sourcing, supply chain management

How to reduce your company’s clearing and forwarding costs by up to 23 percent

by Tania Davey-Smith, Deloitte

Clearing and forwarding – Clearly not that straight forward!

For a more detailed discussion, contact Tania Davey-Smith at  tdavey-smith@deloitte.co.za, Gitesh Mistry at gmistry@deloitte.co.za, Lerato Sithole at lesithole@deloitte.co.za or Riana Bredell at rbredell@deloitte.co.za

Organisations that use import and export as a primary channel of supply and distribution know that clearing and forwarding constitute a major expense item in this process. A large portion of spend in this category includes landside costs, customs examination, duty and VAT, which sadly are not very controllable. However, freight, forex, haulage, storage (port and depot) and agency fees do leave some room for manoeuvring.

The clearing and forwarding industry in South Africa consists of hundreds of agents who manage the supply chain and facilitate the associated services and costs on behalf of their importing or exporting clients. “There are approximately 500 registered members of the South African Association of Freight Forwarders (SAAFF), and many more out there who are not registered, who work out of their boot and cut costs and margins in this highly competitive industry”, says a spokesperson of SAAFF. Like most industries, the clearing and forwarding industry is dominated by a handful of large players, who stay in the game by providing their customers with value-added services, such as the placement of their staff at client premises (thereby ensuring efficient document flow and developing intimate knowledge of the client environment, its products and its unique needs). Inefficient document handling and incorrect tariff codes are cited as two of the primary causes of increased storage times, in turn causing delays at the tariff office, and hence escalating costs.

A web-based tracking system that allows the client to see at all times exactly where the goods in transit are, together with estimated arrival times, is another invaluable service supplied by certain agents, differentiating them from their boot-operating competitors. Close management of costs – by careful selection of the various service providers in the supply chain operation – is required if tabs are to be held on your clearing and forwarding spend. In our analysis of this process, we have been able to consistently reduce spend by 5 to 23% across various industries. In our experience this is achieved by the renegotiation of rates of both service providers (e.g. freight and haulage) and to a lesser degree the agents (who are already on margins of as little as 2%), as well as improved processes and reconsideration of sourcing options. The switching of agents is seldom a recommendation, as the embedded knowledge of the client environment creates a switching cost and added risk to the clearing and forwarding process.

Whilst clearing and forwarding appears to be a cut-throat industry with little room for cost saving, a deeper look into rates and efficiencies, as well as sourcing from different countries, and resultant reduced tariffs can unlock significant expense reduction.

Did you find this useful? Do you have anything to add? Do you have any questions? We would love to hear from you! Oh, and please share with your friends!

Filed under: Consumer and Industrial, Executive Leadership, Finance, Industry And Consumer, Information Technology, Risk Management, Taxation, agency fees, clearing, customs examination, Deloitte, distribution, duty, expense, export, forex, forwarding, freight, haulage, import, landside costs, SAAFF, South African Association of Freight Forwarders, storage, supply, supply chain, supply chain management, VAT, web-based tracking system

How can companies create sustainable savings through energy cost reduction?

This article was written by George Tshesane and Linda Seroka of Deloitte Consulting. If you have any questions or would like to continue the discussion in more detail, feel free to contact George at gtshesane@deloitte.co.za or Linda at lseroka@deloitte.co.za

The significant gap between electricity supply and demand in South Africa, coupled with inclining power tariff increases, is compelling reasons for businesses to reduce electricity consumption. The good news is that energy cost reduction is relatively simple to achieve and can lead to significant improvements in bottom-line performance.

Energy consumes a significant portion of any organisation’s spending, accounting for 5 to 20 percent of a typical company’s costs. This is spiralling upwards as tariffs continue to increase into 2012 and companies must find ways of managing their electricity bills simply to ensure corporate sustainability. Equally compelling, however, is the motivation of ensuring a future for our country and its people.

Many organisations, however, have an awareness of their energy consumption and how to reduce it. They need to understand and actively manage their energy use – and their energy sources, including possible ways to produce their own energy. A comprehensive energy management strategy offers a number of potential advantages including significant savings, improved profitability, greater customer loyalty, a cost-edge over competitors, lower business risk and a company-wide awareness of sustainability that can rein in resource waste across the board.

Business must pay attention to energy efficiency

Cost savings, customer loyalty and sustainability all argue strongly in favour of active corporate energy strategies. But the most crucial spur for action in South Africa is the risk that a company’s operations could be disrupted by energy shortages, outages or escalating prices. The current realities of the electricity sector are therefore forcing business to re-evaluate energy consumption.

In addition, worldwide the trend is towards a greener future. If business does not adjust, it may not find many global markets in future as countries begin to demand environmentally friendly products.

Demand continues to outstrip supply

Decades of robust economic growth, low electricity prices and lack of investment in power generation in South Africa have placed our national electricity supply grid under severe pressure.

Electricity supply can hardly meet the growing demand for power. We have some of the cheapest electricity prices in the world as a result of artificial prices being set over the past few decades to attract foreign direct investment. We therefore use electricity more intensively than most other countries and our economic structure is now biased towards electricity- and capital-intensive industries.

This situation has become unsustainable and the country has to move towards cost-reflective tariffs.

Price increases

The move towards more sustainable electricity pricing is hitting business hard. The price of electricity is increasing by an overall 25% per annum between 2010 and 2012.

This effectively doubles electricity prices over three years, putting profit margins under considerable pressure. Already major energy-intensive organisations are feeling the pinch. Exxarro, for example, cites susceptibility of its zinc refinery operations to rising energy costs among its reasons for closing Zincor.

Business therefore needs to find ways of managing electricity usage before it seriously impacts profitability.

South Africa is taking energy reduction seriously

Government is committed to an aggressive low carbon trajectory and business will soon begin to feel regulatory pressure to become more energy-efficient. Incentives for reducing electricity consumption – and penalties for businesses that fail to do so – are looming.

Drivers for South Africa to reduce electricity consumption include:

Electricity supply security is critical for the country to facilitate economic growth. The costs of power outages are huge. For the government, subsidising energy efficiency or forcing companies to be more efficient is far less damaging to the economy than power disruptions.

Energy efficiency is often the least cost method of creating additional energy supply. The cost of building new capacity to generate 1Mwh can be far in excess of the cost of funding energy efficiency programmes to conserve the same amount of electricity.

The uptake of efficient technologies should assist in maintaining international competitiveness for local industries as global energy prices continue to climb. This is particularly true over the long term and for industries that must remain at the forefront of technology to remain competitive.

There is global focus on environmental protection, particularly climate change and the reduction of carbon emissions. Promoting energy efficiency can be a key tool for meeting our environmental goals and improving social welfare.

Sustainability. Effective energy efficiency will help prolong the life of finite non-renewable energy resources which remain a more cost-effective and reliable means of supply than renewable energy technologies.

Energy management is a global issue

Energy reduction is a global challenge and one that business in developed countries is taking very seriously.

According to the Deloitte resources 2011 US Study, 90% of companies have set goals regarding electricity and energy management practices. 76% have goals related to reducing electricity cost/consumption and 71% have goals targeted at improving the efficiency of the building in which they operate. These goals are significant, typically aiming for an average of 25% in electricity or cost reduction, most often with a 2–3 year time horizon.

56% of the companies have goals aimed at improving profitability through electricity reduction.

How can South African businesses achieve energy savings sustainably?

The time has come for companies to ensure they develop energy strategies. This is not about green-washing. Energy strategies are about hard-core business decisions; about going back to the basics of managing resources and resource use.

From better management of buildings and vehicle fleets, to smarter use of technology, to tighter oversight of their entire supply chain, organisations can mobilise countless tools to help transform how they use energy and other resources.

And companies can actively begin to analyse the potential to produce their own energy – from using their rooftops for solar, to land for windmills, to distributed forms of production, like micro-turbines.

Efficient management of energy consumption deliver real value by increasing revenue and decreasing costs, leading to improved profitability.

There are a number of initiatives that can help increase revenue. Demand reduction programmes, for example, allow energy users to voluntarily reduce demand at short notice and receive monetary compensation. Where appropriate, revenue can also be increased through the sale of excess energy production, and/or renewable energy certificates (RECs). This is a little understood market in South Africa but there are already 30 local projects registered with the UN for RECs.

Operational performance improvement, energy audits and supply-side cost reductions and lead to decreasing costs. Energy efficiency self-audits can determine if more efficient methods or technologies could be deployed to significantly reduce operating costs and create significant value for the company. Evaluation and negotiation of utility contracts to leverage lower rates or tariff opportunities can also lead to substantial savings.

Is there anything you would like to add? We welcome your comments? Did you find this article useful? Please share with your network and provide feedback!

Filed under: Executive Leadership, Finance, Risk Management, carbon emissions, corporate sustainability, cost savings, Deloitte, demand for power, economic growth, electricity consumption, electricity demand, electricity prices, electricity supply, energy cost reduction, energy efficiency, energy management strategy, energy shortages, energy sources, environmental goals, environmental protection, escalating prices, power tariff increases, RECs, renewable energy certificates, social welfare, solar, South Africa

Babies, bathwater, and best practices – Rethinking planning, budgeting, and forecasting

If everyone is thinking alike, then somebody isn’t thinking – George S. Patton

If planning, budgeting, and forecasting isn’t delivering the value your business expects, it may be time for a good scrubbing. But don’t throw it out.

How we got here

The basic tools of accounting—double-entry bookkeeping, income statement, and balance sheet—can be traced to Venetian investors who funded trade expeditions to Asia during the 1400s. These were valuable tools for high-risk ventures, even by today’s standards.

The concept of planning and budgeting came centuries later. The word “budget” derives from the old French bougette, meaning a small purse. In the mid-1700s, Great Britain’s Chancellor of the Exchequer was said “to open the budget” when presenting his annual statement. The term was extended to private and commercial finances in the late 1800s.

At the beginning of the 20th century, business leaders made a defining choice that sowed the seeds of today’s frustration. With outside investors demanding audited financial statements, managers began to rely on external financial reports as measures of internal performance. They believed it was too time consuming and expensive to produce two sets of manual reports.

The voice of reason?

Most organizations don’t have to dig very deep to find people who don’t like planning, budgeting, and forecasting. You might even be one of them. The stress associated with these activities can be enough to wear down anyone’s resolve. With business units protesting in one ear and executive management grumbling in the other, it’s no wonder finance leaders may be tempted to listen to some pundits’ advice and abandon these activities altogether.

But while the complaining may be frustrating, it can also provide clues to what may not be working. Time-consuming manual processes. Endless budget iterations. Wasted technology. Conflicting goals. Poor decision-making. These are the things you could easily do without.

But don’t get carried away. Companies count on finance leaders to be their voices of reason—cool in the heat of battle, skeptical in the face of exuberance, and above all, focused on creating value. In the final analysis, planning, budgeting, and forecasting is a powerful tool – perhaps the most powerful tool—for informing and executing your business strategy.

Download the full article . . . .  Babies, bathwater, and best practices – Rethinking planning, budgeting, and forecasting

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Filed under: Executive Leadership, Finance, accounting, balance sheet, bookkeeping, budgeting, business, ceo, CFO, Deloitte, executive management, finance, financial reports, forecasting, income statement, leadership, management, planning

How to align your board and management to achieve your strategic goals

This paper, written by Deloitte Consulting, provides board members and executive leaders with a practical approach and framework to evolve their relationship and optimise governance effectiveness. If you have any questions, contact Gert de Beer at gedebeer@deloitte.co.za, Garth Bell at gbell@deloitte.co.za or Carla Clamp at cclamp@deloitte.co.za.

Boards and Management renew their vows – A new era of collaborative leadership

A renewal of vows is a symbol of a renewed commitment between two parties. Sometimes parties renew their vows to celebrate relationship milestones and reaffirm their commitment to each other; other times, they renew their vows after a challenging period in their relationship, when their commitment to each other and their relationship has been tried and tested.

Arguably, the Board–Management relationship has been through a challenging time. It suffered a protracted period of scrutiny and tension due to various scandals over the past decade resulting from lack of oversight and accountability (Enron and Worldcom being the most notorious). This has resulted in corporate governance reform across a number of national and international jurisdictions, with a specific focus that boards and executive management be held increasingly accountable for the actions of their organisations. This heightened accountability has put a strain on the Board’s relationship with Management, a strain that has intensified during the recent financial crisis and which has resulted in the increase in Board oversight and involvement in corporate strategy, risk management, executive compensation and achieving sustainable, high-performance cultures. Although increased Board scrutiny on these dimensions is likely to improve business performance and better serve the interests of the shareholders, managing such a large agenda is challenging, and Boards cannot do it in isolation. The reality in this day and age is that Boards must work with Management to both inspire organisational performance and address the expanding accountability agenda. A significant challenge in this regard is the Board’s ability to engage and collaborate in a way that does not compromise its objectivity and independent oversight role.

To achieve the desired Board–Management relationship, a change from the status quo is most likely required for most private and public enterprises. For those organisations that aspire to strengthen longer-term performance and optimise governance effectiveness, the starting point is to understand the current governance culture and the Board–Management relationship, and how they need to evolve.

With this strategic opportunity in mind, this paper will provide Board members and executive leaders with a practical approach and framework to evolve their relationship and optimise governance effectiveness. Furthermore, it outlines an approach to collective leadership which should ultimately enhance organisational performance, increase shareholder value and address the need for increased accountability for inspiring and optimising the commitment of employees to strategic direction and operational performance.

Read the full article . . . .  Boards and management renew their vows

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Filed under: Executive Leadership, Finance, Information Technology, Risk Management, Talent & Human Capital, accountability, board members, Board–Management relationship, business performance, collaborate, collaborative leadership, collective leadership, Corporate Governance, corporate strategy, Deloitte, executive compensation, executive leaders, financial crisis, organisational performance, risk management, shareholder value

Deloitte Risk Advisory talks about how to use combined assurance to extract real value

This article, written by Mimi le Roux and Carla Clamp of Deloitte Risk Advisory, discusses the use of combined assurance to extract real value from the information your organisation pays so much to gather. If you have any questions or require additional information, contact Mimi at mleroux@deloitte.co.za or Carla at cclamp@deloitte.co.za.

Combined assurance – Taking organisations to the next level of maturity

Simply put, assurance providers are the internal and external people who tell managers what is on track and what is not within the company. They provide managers with information about the risks (hazards and opportunities) that have been identified within an organisation. They provide information about the measures that have been put in place to prevent hazards from occurring and reduce their negative impact if they do.

Further, they report on opportunities, particularly those in line with the company’s strategic objectives, and the steps that have been taken to encourage these positive events. Both functions are vital to an organisation’s health, heading off dangers and controlling damage while also eliminating the risk of not achieving strategic objectives.

However, assurance providers create a mass of reports, generating so much information that much of its value is lost as managers battle to account for it in their decision making processes; while duplication and overlaps reported from several perspectives often skews the view.

Read the full article . . . .  Combined assurance – Taking organisations to the next level of maturity

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Filed under: Executive Leadership, Finance, Information Technology, Risk Management, Talent & Human Capital, combined assurance, Deloitte, hazards, opportunities, risks, strategic objectives, value

Deloitte Tax identifies three tax risks to consider when managing your supply chain

This article, prepared by Deloitte Tax, identifies international tax implications when restructuring your organisation’s supply chain activities. For additional information contact Louise Vosloo (Lead Director –  International Tax) at lvosloo@deloitte.co.za or Janien Jonker (Senior Tax Consultant) at jjonker@deloitte.co.za.

“The best supply chains aren’t just fast and cost-effective. They are also agile and adaptable, and they ensure that all their companies’ interests stay aligned.”

(Hau L. Lee, US Professor of Operations, Information and Technology in Harvard Business Review, Oct. 2004)

Three tax risks to consider when managing your supply chain

Supply Chain Management (SCM) aims at fulfilling customer demands through the most efficient use of resources, which includes distribution capacity, inventory and labour. Merely locating the assets and risks of one’s supply chain in a favourable tax jurisdiction is not sufficient. The functions, together with the people, must be located in the chosen jurisdiction to manage these particular assets and risks. It is essential that the systems and processes, implemented and applied, support these functions in order to create a sustainable tax benefit.

Local tax authorities will attempt to defend their tax base at all costs. This may result in the local tax authorities seeking substantial taxable capital gains and/or transfer pricing adjustments when restructuring actions (which reduce the ultimate tax they would have received) are implemented.

Therefore, careful planning and documentation substantiating the reasons why certain steps were taken, are essential to ensure most tax risks are mitigated. Transfer pricing documentation also forms an important part of the documentation required. In the absence thereof, a substantial amount of time and resources may need to be set aside in the event that adverse assessments have to be defended.

The following are a few tax risks to consider with regard to supply chain management:

Low tax jurisdictions

It is interesting to note that whenever a South African group is considering a restructure of its current operations, Mauritius is almost always the first “low-tax” jurisdiction to be considered, and justifiably so. Mauritius has a wide treaty network and a low tax rate, and it provides relief for capital gains tax when shares are sold.

However, it is common knowledge that whenever a “low-tax” jurisdiction (e.g. Guernsey, Mauritius, Isle of Man) is part of a company’s group structure, it is frowned upon by SARS. This is no surprise, as there is most likely no other reason to have an entity in such a location, other than for the provided tax benefits.

Therefore, even though a favourable tax jurisdiction can be chosen, it asks for something in return – substance.

This could be illustrated as follows:

Company Z, a South Africa tax resident, sets up an entity (Company Y) in the Netherlands, to optimise its supply chain management by utilising the tax benefits provided for. The following activities should, inter alia, be executed by Company Y to ensure it has sufficient substance in the Netherlands:

• No strategic or policy decisions regarding business operations should be taken by Company Z.
• All board meetings should take place in the Netherlands.
• Staff must be suitably qualified and provided with suitable equipment, such as telephones and computers.
• Decisions should not merely be “rubber-stamped”, as though already taken by Company Z.

The substance and risk are components that impact significantly on the amount of profits that may be attributed to the company in the supply chain, in this instance Company Y. In addition, in the event that the decisions pertaining to the day-to-day operations of Company Y are taken by Company Z, SARS could determine that Company Y is being “effectively managed” from South Africa, and subject it to South African tax on its worldwide income.

Double taxation agreements (“DTAs”)

A country with a wide treaty network is an important consideration.

In terms of supply chain management, the two primary articles of any DTA to watch out for are the articles dealing with permanent establishments and business profits.

Even if an entity is set up in a favourable tax jurisdiction, it should be careful about not carrying out any activities in South Africa that could result in the creation of a permanent establishment in South Africa.

This could be illustrated as follows:

Company X is set up in the Netherlands, but contracts are negotiated and signed on its behalf by a person in South Africa. This would result in the creation of a permanent establishment for South African tax purposes for Company X in terms of the DTA entered into between South Africa and the Netherlands.

In light of the above permanent establishment creation in South Africa, the particular DTA further determines that the profits attributable to the permanent establishment would be subject to South African tax, thus possibly negating any tax benefits that may have otherwise been generated.

Controlled foreign company (CFC) considerations

Our CFC legislation currently acts as an anti-avoidance provision by imputing the income of a foreign company and subjecting such income to tax in the hands of its South African shareholders.

It contains the so-called “diversionary-rules”, and Silke on International Tax at paragraph 3.6.2.2. states the following in respect thereof:

These rules, which are essentially provisions targeted at tax avoidance, are aimed at deterring South African taxpayers from entering into transactions aimed at shifting income that otherwise would have been taxable in South Africa, out of the South African tax net and into a taxing regime that is more beneficial.

The diversionary rules need to be reviewed when goods are sold and services rendered to South African residents who are connected parties in relation to the offshore entity.

Conclusion

When restructuring one’s current supply chain activities, it is important to consider the international tax implications, as set out above. One cannot implement new supply chain functions by only considering the physical execution thereof.

We recommend that you thoroughly research, consider and apply possible solutions to suit your company’s unique operations, which can result in potential tax savings.

Download the article in .pdf format . . . . Three tax risks to consider when managing your supply chain 

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Filed under: Finance, Risk Management, Taxation, anti-avoidance provision, capital gains tax, CFC, Controlled foreign company, Deloitte, Deloitte Tax, diversionary-rules, Double taxation agreements, DTA, international tax, international tax implications, low tax jurisdictions, low tax rate, Mauritius, SARS, Silke, South Africa, supply chain, tax, tax authorities, tax jurisdiction, taxable capital gains, Taxation, taxing regime, taxpayers, transfer pricing adjustments, treaty network, wide treaty network

Tenth reason why you must pay attention to Green Growth – Global demand trends means SA business has to change

Kay Walsh of Deloitte has written an article listing 10 compelling reasons why South African companies must pay attention to Green Growth. Sustainability and climate change is at the top of the agenda for most companies and must be taken very seriously. Here is the tenth reason why companies need to pay attention to “Green Growth”.

Contact Kay Walsh at kaywalsh@deloitte.co.za or visit the Deloitte Sustainability and Climate Change website for more information.

Global demand trends means SA business has to change

Businesses no longer have the luxury of turning a blind eye to the „green revolution‟ – they have to keep pace with major shifts in global demand.

Unlike major emerging markets (such as India, China and Brazil), South Africa does not have a large domestic market and therefore is more heavily reliant external markets and foreign investment. This dictates that our businesses and industries remain relevant to global demand trends. As the demands of the developed and the emerging world change, so we need to adapt.

Investor confidence will be boosted if business and government demonstrate clear policies for addressing environmental concerns as well as future plans for energy sources and generation capacity.

Key here is that South African business understands and focuses on what the world is going to demand in 10 to 15 years‟ time, and gears up for it now.

I welcome your comments and feedback. Please share with your network and others that may benefit from this content

Filed under: Executive Leadership, Finance, Information Technology, Risk Management, behavioural changes, biodiversity, Carbon Tax, ceo, climate change, DBSA, Deloitte, Department of Energy, Development Bank of SA, DOE, economic growth, energy generation, energy-efficient technology, environmental degradation, Environmental Fiscal Reform Policy paper, environmental problems, environmental taxes and incentives, environmentally friendly growth, fossil-fuel, GHG, global green trends, green, Green Growth, green initiatives, green revolution, growth and development targets, harsh penalties, High carbon content, IDC, incentives for becoming greener, Industrial Development Corporation, innovation, Integrated Resources Plan, Long-Term Mitigation Scenarios report, lower greenhouse gas emissions, National Treasury, natural environment, natural resource, oil prices, renewable sources, Stern review, sustainability, sustainable energy efficiency

How to enhance value from your service delivery organisation

This article, prepared by Deloitte Consulting, discusses ways to enhance shared services to become more competitive. If you have any questions or require additional information, contact Mike Vincent at mivincent@deloitte.co.za.

Enhancing Value From Your Service Delivery Organisation

Increasing competitive pressures, coupled with the ongoing push by shareholders for enhanced controls, has made service delivery capabilities for a company’s general and administrative (G&A) functions more important than ever before. Companies are working to drive down costs as well as to enable the business to focus on core strategic challenges rather than simply “run the engine.”

In such an environment, senior executives face a hard reality: To stay competitive, a company’s service delivery organisation must either continually improve by driving down costs, or else risk falling behind. Standing still is not an option.

Many companies have used shared services organisations and outsourcing for non-core, transactional activities to generate economies of scale and improve productivity. Now, companies are searching for ways to further develop these approaches and take service delivery to the next level.

We believe that many companies can find important opportunities to enhance service delivery effectiveness by:

• Expanding their service delivery organisation’s functional scope
• Enhancing internal customer management
• Creating a strong service culture
• Rethinking facilities and infrastructure

Companies that adopt leading-edge approaches in these areas can gain the ability to leapfrog the competition by reaping enhanced benefits from their service delivery organisations.

Increasing competitive pressures will continue to force companies to scrutinise G&A functions to understand how they can better drive shareholder value. Yet most service delivery organisations are the result of a series of individual decisions over the years, resulting in piecemeal operating models that are unable to sustain or expand value for the company.

The need to improve operating efficiencies while simultaneously maintaining or increasing internal customer satisfaction makes it imperative for companies to constantly reexamine their service delivery organisations’ strategy and operations. Companies should analyse their past service delivery approaches and experiences to learn what worked well and what did not. In addition, they should look at and learn from innovative service delivery approaches that other companies are using to achieve success.

For their part, service delivery organisations should make a concerted effort to redefine themselves as strategic business partners and trusted advisors that can help their companies achieve their strategic objectives.

Innovation, fortitude, and a relentless passion for continual realignment and improvement are the defining characteristics of service delivery organisations capable of leapfrogging the competition to become tomorrow’s leaders.

Download the full article . . . .  How to enhance value from your service delivery organisation

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