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Nearshoring in Europe: Protecting value chains

January 11, 2024

Nearshoring in Europe has become a trend since COVID, as companies grapple with strategic shifts and challenges in the global business landscape and bring operations closer to home. Amidst the complexities of international trade, transfer pricing emerges as a critical aspect that demands careful consideration. Martin Bonner, partner at AREA Bollenberger in Austria, shares his insights into the trends, challenges, and recommendations shaping the world of transfer pricing and cross-border operations.

Supply chains and a shift towards Europe

In recent years, a notable trend has emerged among multinational corporations seeking to safeguard their value chains. Martin Bonner sheds light on this shift, “Companies are increasingly practising nearshoring where feasible. Reasons include ensuring supply chain security, compliance, and cultural aspects.”

The motivation for this move is multifaceted. Supply chain security, compliance considerations, and cultural compatibility are key drivers. However, the shift is challenging. Bonner acknowledges challenges such as the availability of European suppliers and the persistent need to source from regions like Asia due to cost considerations. “If sourcing from the Far East proves significantly cheaper, it remains a viable option,” notes Bonner, pointing to regulatory measures like the Carbon Border Adjustment Mechanism (CBAM), prompting a shift towards EU sourcing to sidestep compliance and import costs.

Transfer pricing dynamics

The relocation of production from Asia to Eastern Europe brings new opportunities and challenges in transfer pricing. Bonner explains, “Transfer pricing setups generally simplify when production shifts from Asia to Eastern Europe.”

However, the simplicity comes with a caveat. Tax audits in the Far East often deviate from understanding European transfer pricing regulations, raising the spectre of double taxation. Bonner emphasises the importance of assessing transfer pricing setups locally in all regions involved.

Bonner highlights the value of leveraging the Kreston network to mitigate this risk. “Our Kreston network is beneficial, with local transfer pricing experts reducing the risk of double taxation,” he states, underlining the significance of a global support system in navigating the intricacies of cross-border operations.

The evolving business landscape in Austria

Reflecting on the past 12 months, Bonner observes a shift in the dynamics for international clients doing business in Austria. “Compliance work has increased, and economic, geopolitical, and global political risks have led to a decreased willingness to invest,” he notes. Investments, when made, are now more strategically focused on domestic or closer markets, mirroring a trend of risk aversion and heightened scrutiny in the current geopolitical climate.

Proactive measures for international businesses: Advice for 2024

As businesses contemplate expansion into Austria in 2024, Bonner offers a comprehensive set of recommendations. “Our experience shows that even smaller companies are increasingly subject to transfer pricing audits,” he warns. Bonner stresses the importance of proactive engagement with tax aspects from day one, encompassing transfer pricing and withholding tax, VAT, customs, and the implications of regulatory measures like CBAM.

“With the extensive resources and expertise of the Kreston network at our disposal, we are well-equipped to provide top-tier services addressing all these aspects,” assures Bonner. His advice underscores the necessity for a holistic approach and strategic foresight to navigate the intricate web of cross-border business operations. As businesses chart their course through the challenges and opportunities of international trade, insights from experts like Martin Bonner offer a valuable compass, guiding enterprises towards success in an increasingly complex global landscape.

If you are interested in doing business in Austria, please get in touch.