September, 2005

RFID – The Next Step in Supply Chain Efficiency

RFID (Radio Frequency Identification) still holds the promise to transform the way companies forecast demand; manage production, inventory, and distribution; and market to consumers within the store. It is a powerful enabling technology that has the potential to transform the supply chain when integrated with business processes and applications that put critical supply chain data into context for manufacturers and their customers to make smarter business decisions.

The potential supply chain benefits identified with RFID created a sense of urgency for many companies, particularly those in the consumer goods and retail industries, to understand, assess, and deploy RFID solutions. The aggressive time lines introduced by US retailers making RFID mandate announcements forced manufacturers to implement an immature technology, and, unfortunately, implementing an RFID solution proved to be more complex than anticipated. Also, the scope of these pilots became very narrow as companies placed too much emphasis on compliance cost.

The true value of RFID became lost in the wake of these mandate-driven projects, and many companies are now struggling to answer the question of whether RFID will simply be an added cost of maintaining business or become the disruptive technology that transforms their supply chain.

While RFID solutions are being considered by a number of organisations of all sizes, there is still much confusion in the market surrounding the requirements for RFID solutions – have the standards been set, are the solutions affordable, will I need to upgrade my ERP or SCM software, will my IT infrastructure cope with all the extra data these chips will generate, will I need a new analytics solution and probably more important than anything else, what would I do differently if I had all of this information at hand and how will it affect my business processes as they stand now?

Early reports from the field do suggest that while there are some benefits, there is still a long way to go before many organisations begin to invest in RFID for the “right” reason – that is, the business benefits that RFID bring.

IDC believes that those organisations that develop and implement a comprehensive RFID strategy that goes beyond compliance with customer mandates will be poised to gain a competitive advantage once the dust settles from the early pilot projects. We also believe that companies should treat their RFID business case as a living document and that they should consider adopting an "options thinking" IT investment strategy instead of a traditional ROI strategy when evaluating RFID.

An options thinking strategy requires an organisation to identify its RFID opportunities or "options" and make an initial investment (akin to purchasing a call option) in a scalable RFID platform with an eye toward the potential value of the identified options. This strategy gives management the flexibility to "exercise their option" on a given project or projects, just as a call (or put) option is exercised on a stock, rather than invest in a throwaway solution to meet compliance requirements.

Figure 1.RFID Opportunities

Source: IDC, RFID Investment: Cost of Compliance or Strategic Business Benefit

“All IDC research is © 2005 by IDC. All rights reserved. IDC Go-to-Market services make IDC content available in a wide range of formats for licensed distribution by various companies. A license to distribute IDC content does not warrant an opinion or an endorsement of the licensee or its products and services.”

Taxation update

Thin capitalisation and International Financial Reporting Standards

On 7 September 2005, Tax Laws Amendment (2005 Measures No. 5) Bill 2005 was introduced into the Senate, having being passed by the House of Representatives on the same day.

Amongst other things, the Bill will allow taxpayers for a transitional period to continue to calculate their thin capitalisation positions using accounting standards as they existed prior to the introduction of the Australian equivalent of International Financial Reporting Standards (“AIFRS”) on 1 January 2005.
The thin capitalisation provisions limit the extent of tax deductions for interest available to taxpayers that have international operations, or are foreign controlled, by reference to their ratio of debt:equity. In many instances, the limit is determined by reference to a “safe harbour debt amount”, which is broadly 75% of the net assets of the entity. There is a pro-rata disallowance of debt deductions where the taxpayer’s total debt exceeds the safe harbour debt amount.

As the safe harbour amount is based on amounts determined by reference to accounting standards, taxpayers may find that they no longer pass the safe harbour test as a consequence of the adoption of AIFRS. For example, a taxpayer may not be able to recognise certain intangible assets under AIFRS that were previously reflected on its balance sheet and taken into account in determining the asset base for thin capitalisation purposes.

The proposed amendments will allow taxpayers the option to use pre-AIFRS accounting standards in calculating the safe harbour debt amount for a transitional period. This option will be available for the three consecutive income years commencing on or after 1 January 2005.

While taxpayers who choose to adopt this transitional approach need not produce another set of audited accounts, adjustments will need to be made to the revised AIFRS carrying values to arrive at an appropriate figure for use in their safe harbour calculations.

ATO Compliance program

The Australian Taxation Office (“ATO”) recently issued its Compliance Program for 2005-2006 outlining significant tax issues facing large businesses that the ATO will be focusing on during the year. The ATO has indicated that it will be targeting taxpayers that: show significant changes in their tax consolidated groups in respect of items such as ownership, financing, losses and assets; companies with a long history of tax losses; and taxpayers with a history of failing to meet their lodgement obligations.

The ATO also intends to focus its compliance activities on finalising issues arising from tax reforms, including debt and equity measures and the taxation of international transactions and financial arrangements.

Losses new!

On 14 September 2005, the Government introduced Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 into Parliament. The Bill aims to simplify the continuity of ownership test requirements for widely held companies and eligible subsidiaries that seek to claim tax deductions for tax losses. The Bill also proposes to remove the availability of the same business test for companies whose total income is greater than $100 million in the year the losses are sought to be claimed. Further details regarding the proposed measures will be provided in a future issue of ice.com.ment.

IT Project Management Survey

Today’s business leaders are under increasing pressure to perform and make business commitments to boards, shareholders and customers. A big part of achieving (or
not achieving) commitments rests with an organisation’s ability to maximise the full potential of its technology project investments.

Over the last seven months, KPMG’s Information Risk Management Group has been developing a global survey on current IT project management practices and trends within organisations around the world. The survey will be released in Sydney on 21 September 2005 and Melbourne on 4 October 2005.

The survey, conducted with 600 organisations around the globe, addresses the ability of organisations to make and keep commitments, the role governance plays in ensuring the delivery of promised value and the golden rules to successful project management. The whitepaper also contains extensive commentary on business benefits and business cases as well as what organisations need to do to get better results from their investment spend.

If you would like a hard copy of the whitepaper please contact Jacqui Riley on 02 9335 7067 or e-mail jriley1@kpmg.com.au. If you would like to discuss any aspects of the paper please contact Vince Gill on 03 9288 5004.

ICE thought leadership

Film Financing and Television Programming: A Taxation Guide
This new book for tax and finance executives focuses on financing structures, tax considerations, and financial incentives for film and television production companies operating in countries around the world. This edition is an update from our 1999 publication and provides current information on:

• specific incentives used by governments to drive film and television production activity in 28 countries
• key country facts, film financing structures, tax and financial details, indirect taxation issues and corporate and personal tax considerations by country

Please click on the link below for further information on the book.

http://www.kpmg.com.au/Default.aspx?TabID=206&KPMGArticleItemID=1528

If you would like to receive a hard copy of the publication, contact Kellie Smith on 02 9335 8966 or email Kellie Smith kelliesmith@kpmg.com.au

Managing the Risks of Counterfeiting in the Information Technology Industry
Written with the Alliance for Gray Market and Counterfeit Abatement (AGMA), Managing the Risks of Counterfeiting in the Information Technology Industry addresses the piracy issues facing any IT company with an established brand and discusses strategies to combat counterfeits. It provides details on the extent of the threat, lessons from other industries, and best practice solutions from some of the industry's bell-weather companies who have organised programs to mitigate the problem.

Please click on the link below to download a copy of the report from the KPMG website.

http://www.kpmg.com.au/Default.aspx?TabID=213&KPMGArticleItemID=1527

If you would like to receive a hard copy of the publication, contact Kellie Smith on 02 9335 8966 or email Kellie Smith kelliesmith@kpmg.com.au

ICE industry news

SPAN/CommsDay Annual Awards
The SPAN/CommsDay Annual Awards were held in Sydney on 1 September 2005, with KPMG being selected as a finalist in the “Excellence in Services to the Industry – Professional Services” category.

Congratulations to all the winners and finalists.

Details can be found on the SPAN website at:http://www.span.net.au

Some of our Telecommunications team at the 2005 SPAN/Comms Day Annual Awards.

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