Tax Groups Can Help Temper Structural Supply Chain Volatility

Aside from the more obvious legal and economic impacts, from a supply chain (SC) management perspective, the U.S. Supreme Court’s ruling that President Trump does not have a statutory authority to impose tariffs under the International Emergency Economic Powers Act (IEEPA) was par for the course. While most trade barriers, such as tariffs, generally increase both overall and sector-specific economic uncertainty, these government-imposed restrictions usually result in higher costs for imported goods and other business expenses, as well as shrinking profit margins. These increased costs impact all supply chain participants and are ultimately passed on to consumers. Tariffs frequently disrupt supply chains by complicating sourcing decisions and introducing production delays. They can also diminish operational efficiency and economic performance, particularly in “value” chain networks. Over time, such disruptions can cause entire networks to fail across various sectors and situations. For smaller and mid-sized businesses, disruption can escalate into "destruction," causing negative externalities and ultimately broader deadweight loss.

Despite the high stakes nature of the decision, COOs and supply chain management leaders have been treating tariffs and related trade policy volatility as one of “five interlocking structural forces,” that “are redefining the outlook for global supply chains,” according to Global Value Chains Outlook 2026, a report on the state of supply chains published by the World Economic Forum (WEF) and Kearney. Other analyses of emerging supply chain trends also portray disruptions as permanent features rather than a cyclical condition, as indicated above. This enduring uncertainty underscores the need for the tax group’s assessment, insights, and input on supply chain risk management and related scenario planning activities. After all, tariffs are front-end (ex-ante) [consumption] taxes.

Before delving into tax’s contributions to supply chain orchestrations, it’s helpful to consider the five interrelated forces that the WEF/Kearney report describes:

1. Subdued and uneven economic growth driven by inflation and capital constraints
2. Trade policy causing network fragmentation
3. Geopolitical volatility that is giving rise of competing trading blocs
4. The rapid adoption of AI and other emerging technologies, which are redefining how industries compete
5. The rise of trust (think data integrity, transparency, and credibility) as a strategic differentiator

In response to these forces, corporate leadership teams may be prioritizing resilience over efficiency. In practice, this involves considering foreseeable event factors and other related SC network variables, re-evaluating the supply chain regional network, diversification, building inventory buffers, and investing in technologies that support faster supply chain adjustments. It’s fitting that KPMG’s 2026 Trade Outlook cites the myth of the Hydra as a metaphor for ongoing supply chain disruptions: cut the head of one disruption (e.g., an extreme weather event), and another head (e.g., a geopolitical conflict) immediately replaces it.  

KPMG finds that many supply chain management strategies share a common theme: “resilience as a buffer against continued and persistent shocks … Strategies include diversification of supplier sources, nearshoring, inventory buffers and utilization of new technologies.”

Those approaches have implications on indirect tax compliance and planning activities. As organizations diversify sourcing to increase trading activities in lower-tariffed jurisdictions, they add new logistics nodes, warehouses, fulfillment centers, and contract manufacturing relationships. These changes can trigger VAT/GST registration obligations, new indirect tax compliance requirements, and exposure to digital services taxes.  As more companies shift to distributed, multi-node supply chain designs, there is a risk that the speed of restructuring outpaces the compliance-mapping activities.

When thinking at the margin, indirect tax leaders can successfully mitigate these risks by:

• Emphasizing that nexus exposure expands as supply chains become more distributed: The creation of modular factories, new sourcing arrangements, and new regional hubs can create new legal presences across multiple tax jurisdictions. Tax leaders should keep their supply chain partners informed of economic nexus thresholds, registration obligations, and customs classification decisions as operational decisions are being made
• Highlighting the transfer pricing and indirect tax compliance implications of supply chain realignment: Supply chain overhauls can change where value is created, which may affect intercompany pricing structures as well VAT treatments of intragroup service flows, licenses, and contract manufacturing arrangements.
• Identifying relevant e-invoicing and digital reporting mandates: The WEF/Kearney report notes that supply chain orchestration, defined as “actively synchronizing capabilities across a diverse, agile ecosystem of suppliers, technology providers, logistics partners and contract manufacturers”, requires a digital nervous system. This automation uses real-time data flows to link connecting suppliers, partners, and regulators. These connections can intersect with the growing number of e-invoicing mandates and real-time reporting requirements that more global tax authorities are adopting. When supply chain leaders digitally transact with trading partners, they should be aware that tax authorities may require access to some of that data.

As more companies treat “supply chain orchestration” as a strategic urgency, tax leaders should prioritize securing a seat in the planning orchestra.