This article summarizes the key points of a roundtable discussion by PwC Japan experts on transformation in the shipping and logistics industries and M&A execution capabilities, presented in Part 2.
Multiple international tax changes are affecting business design in the shipping industry, requiring consistency in the application of transfer pricing rules and the allocation of profits from intra-group transactions. With the introduction of Pillar Two, the effectiveness of tax incentives and the structuring of operations have become issues for consideration, while managing tax risks during post-acquisition integration has become increasingly important.
Global network design may affect not only compliance with minimum tax requirements but also the treatment of non-shipping income from ports, warehouses and IT operations. International shipping income from vessels may be excluded, while income from non-shipping businesses may not be excluded in some cases, requiring a review of the allocation of functions after an M&A transaction.
The introduction of IFRS 16 Leases brings time charters and other charter arrangements onto the balance sheet, with increases in assets and liabilities affecting metrics such as ROA and ROIC. Practical challenges include identifying leases, classifying contracts and addressing differences between tax and accounting treatment, and it was suggested that implementing the necessary systems would also place a burden on companies.
It was noted that scenario planning incorporating geopolitical and economic security risks is essential to executing M&A, including PMI, and participants agreed that economic security should be incorporated into the management agenda when making investment decisions. In addition, from a tax and accounting perspective, the conclusion was that companies need to continuously assess the sustainability of existing systems and the impact of new systems.