Tax & Accounting Blog

Today’s Borders are Drawn by Infrastructure

Blog, Global Tax Compliance, ONESOURCE May 2, 2016

This is part three in a series on how corporations do business globally. You can read Part 1 and Part 2 here.

Geo-strategist and author Parag Khanna brought some amazing statistics up in his most recent TED talk.

To show how interdependent the world has become, Khanna pointed out that there are 64 million kilometers of roads, four million kilometers of railways, two million kilometers of pipelines, one million kilometers of internet cables — but less than 500,000 kilometers of international borders.

The infrastructure that connects people simply dwarfs the boundaries meant to separate them. About borders, he said: “Every journey I take around the world, I see an even greater force sweeping the planet: connectivity.”

To talk about the movement of goods is impossible without talking about the fact that infrastructure is its own type of border — one which is today more important to understand than the static borders negotiated by nation-states. Economically and regarding business, a line in the dirt doesn’t mean much when planes fly above it and oil pipelines and broadband cables run beneath it.

World trade has grown by a factor of 10 in the past 30 years. There are three times as many free trade agreements today as there were in 2004. Khanna argues that megacities, cities with more than 10 million inhabitants, will soon be the dominant force shaping the world economy. Already, economic might has grown progressively more clustered.

Whether it’s Toyota’s globalized manufacturing model or Apple’s absurdly efficient supply chain, companies everywhere are rethinking how to make and sell products by following a new order not established by borders but instead formed by infrastructure. The supply chains of tomorrow are longer, crossing through more countries and involving more-complex sourcing strategies. They also reach consumers with greater efficiency.

Nation-states, meanwhile, have a separate challenge: to collect their fare share of revenue from the companies that either do business from within their geographic borders or manufacture their goods through it. The most powerful tool that nation-states can deploy to accomplish this is regulation — and the more complex a supply chain is, the more of these regulatory requirements it has the chance to touch.

While the vast majority of multinationals aren’t looking to skirt taxes they owe, reporting timely and accurate information to the increasingly voracious tax authorities is a priority they must accommodate. Automating tax and corporate finance processes therefore reduces both costs and risk because all the relevant information becomes available on demand and in real time.

Stay tuned for Part four, which will focus on innovation. Want more information on how global tax departments stay ahead? Check out ONESOURCE corporate tax technology.