Balancing tax incentives with operational risks in captive overseas production facilities

Due to the general macroeconomic downturn, many companies have turned to offshoring - sending a function overseas - to reduce production costs. While some companies elect to outsource overseas production to outside companies, many companies choose to keep production in-house and therefore create captive production facilities overseas. In many countries, the government will provide financial incentives (e.g. tax breaks, loans, subsidies) to certain companies in exchange for creating employment opportunities and industry knowledge within their borders. These financial incentives may tempt companies to shift more and more functions overseas; however, in many cases, there are significant operational risks involved with shifting functions overseas. This thesis uses a six-month project as a case study for discussing ways to weigh financial benefits against operational risks. The project was conducted at the European headquarters of Spirit AeroSystems, the largest independent designer and manufacturer of independent aerostructures for the commercial aircraft industry. Spirit Europe recently launched a greenfield factory in Malaysia. Malaysia was selected as the factory site for a variety of reasons; among which was a long term tax incentive. This thesis describes the process and tools used to select an optimal transfer pricing relationship (i.e. scope of work to be performed overseas) and transaction methodology that would best monetize the long-term tax incentive without incurring unacceptable levels of operational risk.

Department dc:contributor.department

Leaders for Manufacturing Program at MIT

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2009

Author dc:creator

• Chang, Audrey, M.B.A. Massachusetts Institute of Technology

Advisor dc:contributor.advisor

• Donald Rosenfield and Daniel Whitney.

• Sloan School of Management.
• Engineering Systems Division.
• Leaders for Manufacturing Program.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/49790

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/49790