TAX AS A COMPETITIVE LEVER IN AN INTERNATIONAL INVITATION TO TENDER
CASE STUDY #1
Issue: The proper use of tax to define the price in an invitation to tender and ultimately give a company the means to expand internationally.
Legal issue: The client, a French publisher of network management information system software, is bidding on a €15 million tender for a major public energy supply network in an African country.
In terms of taxation, the question is as follows: with operations in France and Africa, how can we determine the impact of taxation on the tender price ? In other words, how to calibrate the 'cost' of taxation.
At the same time, case law handed down by the French Conseil d'Etat highlights a difference of opinion between France and certain other countries on the concept of technical studies. In this case, technical studies must be carried out in France with a view to selling the product. The question, therefore, is how to qualify them; are they royalties - subject to double taxation - or not?
France considers that technical studies invoiced from France are only taxable in France. The African country issuing the invitation to tender does not accept this classification and concludes that there is double taxation.
Challenge: The client is unfamiliar with Africa and not very familiar with international business. It is necessary for the client to take into account tax issues when responding to the invitation to tender.
This project involves complex transnational industrial contracts of the EPC type and requires work to be carried out in France and in an African country. In addition to the technical nature of the case, it requires the client to navigate between several countries, and to come up with a detailed response in light of recent developments in case law.
The tax issue here presents the client with a dilemma: either increase its prices, so that the tax friction is absorbed, with the risk of losing competitiveness and the offer being rejected, or take the tax risk of the withholding tax being called into question.
Solutions: As part of the assistance provided in responding to the invitation to tender, applications for tax relief were filed and tax exposure was limited to part of the market. It was therefore possible to anticipate that it would not be possible, in part, to recover the tax credit in France, and this cost was factored in.
Taxation was both a security lever for the client and a possible price improvement, not to say a competitive advantage, because in the end the company was more competitive than others.
Result: The company won the tender and was able to expand its business internationally for the first time.
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