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Friday, June 18, 2021

How ViacomCBS’s Content Deals Cost U.S. Taxpayers $4 Billion

Dismissed by critics and devoured by followers, “Transformers: Age of Extinction” was the highest field office movie in 2014, bringing in $1.1 billion, with greater than three-quarters of these {dollars} coming from abroad.

ViacomCBS’s Paramount Pictures, which distributed the computer animated action-fest, saved a lot of that money by licensing the worldwide rights via a posh technique designed to keep away from paying U.S. taxes, in response to a study published on Tuesday by the Centre for Research on Multinational Corporations, a nonprofit group funded partially by the Dutch Ministry of Foreign Affairs.

It is frequent follow for multinational companies to reap the benefits of tax shelters. The report affords a uncommon have a look at how one company has pulled it off.

ViacomCBS, a media big that got here into being after the 2019 merger of the sibling corporations, has used the identical technique for all its leisure properties, in response to the report.

Since 2002, ViacomCBS and its predecessor corporations Viacom and CBS collectively averted paying $3.96 billion in U.S. company earnings tax via a system that concerned subsidiaries in Barbados, the Bahamas, Luxembourg, the Netherlands and Britain, in response to the report.

Much of the $30 billion in non-U.S. royalty income introduced in by the company’s movie and TV franchises, comparable to “SpongeBob,” “Star Trek” and “Mission: Impossible,” has not been topic to company taxes, the examine decided.

ViacomCBS disputed the examine’s findings, saying in an announcement that it was “deeply flawed and misleading” and that it “demonstrates a fundamental misunderstanding of U.S. tax law.”

“It is filled with mis-characterizations, material omissions, and numerous false claims,” the company mentioned in an announcement. “ViacomCBS fulfills its tax obligations in all 180+ countries and the territories we operate, and all of our revenues — including those identified in this report — are fully taxed in relevant jurisdictions around the world, including the United States, as required by applicable law.”

ViacomCBS added that its “overall global effective tax rate” was 32.6 % for Viacom between 2006 and 2019 and 33.8 % for CBS in that point span.

The examine on ViacomCBS’s tax structure has come out weeks after President Biden proposed a 15 % minimal tax on abroad earnings for U.S. corporations, an effort designed to maintain international locations from competing with each other by reducing their tax charges. The prompt world rate is an element of a bigger plan to overtake the tax code that may elevate company earnings tax within the United States to twenty-eight %, from 21 %.

ViacomCBS, which is led by Shari Redstone, has sought to reap the benefits of ever-changing tax legal guidelines in different international locations in a “cat and mouse” sport, the examine mentioned. Before the merger, Viacom and CBS, each of which had been managed by the Redstone household, employed the identical technique of shifting international mental property licensing rights to subsidiaries outdoors the United States when charges turned extra favorable, the report mentioned.

The Centre for Research on Multinational Corporations mentioned it selected to deal with ViacomCBS as a result of it had arrange quite a lot of Dutch subsidiaries, generally known as letterbox corporations, to soak up massive quantities of tv income.

“Most of the entities did not even have a single employee,” Maarten Hietland, one of many examine’s authors, mentioned in an interview.

ViacomCBS mentioned in its assertion that it had abroad areas “for core, strategic business purposes, and not for any perceived tax benefits.” The assertion added that, within the Netherlands, the company has 300 staff and a manufacturing studio and generates “$1 billion in annual revenue outside of licensing.”

Licensing, or royalty income, has all the time been a major a part of the business, accounting for about 24 % of yearly gross sales since 2018. Media corporations are actually pushed by streaming, a comparatively new enterprise that has been shedding money because it tries to draw as many subscribers as doable everywhere in the world.

Unlike companies that produce bodily items, media corporations can reap the benefits of the intangible nature of their merchandise. Moving licensing rights to SpongeBob from one nation to a different is only a matter of paperwork.

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June 1, 2021, 12:20 p.m. ET

Jeffery Kadet, an professional on worldwide taxation and an teacher on the University of Washington School of Law, mentioned the strikes are akin to self-dealing.

“If you take money or other property like licensing rights and move them from one subsidiary to another subsidiary, have you done anything that changes the group as a whole economically? The answer is that you haven’t,” he mentioned. “It’s like taking a dollar bill from your front left pocket and moving it to your right rear pocket. You still have the dollar.”

ViacomCBS’s tax preparations, which seem like authorized, reap the benefits of disparate tax codes throughout nations, the examine mentioned. Income that could be thought-about taxable within the United States could also be deemed free from such levies within the Netherlands, as an illustration.

Since 2002, tax specialists working for Viacom, CBS and ViacomCBS have devised buildings to reap the benefits of these mismatches, thus reducing its taxable earnings, in response to the examine. Almost all of those plans concerned one nation: The Netherlands.

Dutch tax authorities, in an effort to compete with different European nations, have supplied favorable rulings to multinational companies, permitting some corporations to pay taxes on simply 0.8 % on income from licensing worldwide distribution rights. In different phrases, for each greenback Viacom collected abroad for a blockbuster like “Transformers” (after changing from reals, lira or renminbi), lower than a penny was probably topic to company earnings tax, in response to the examine.

Dutch authorities have created what tax specialists name a “conduit” system the place most if not all of a U.S. company’s worldwide earnings is funneled via a area with pleasant tax codes. Alphabet, Starbucks, Dell and different U.S. companies have additionally had models within the Netherlands.

ViacomCBS — and its predecessor corporations — created a number of subsidiaries within the Netherlands to carry the international licensing rights to their TV packages and movies, content material largely created within the United States. The corporations then used the subsidiaries as a springboard to sub-license these rights to different markets. The money from these offers all come again to the Dutch entities, the place most of it’s not topic to company tax.

One Viacom govt objected to the technique. In 2016, she filed a lawsuit in opposition to the company for a “retaliatory firing” after she spoke up about what she thought-about “an illegal tax avoidance scheme in violation of federal law.” (A couple of months after the go well with was filed, each events settled, and the phrases weren’t disclosed. “We believed the claims to be without merit and the matter has been resolved,” the company mentioned.)

In the go well with, the manager accused Viacom of “hatching a plan to attribute” the income from the favored franchise “Teenage Mutant Ninja Turtles” to the Netherlands for tax benefits. While the rights to the franchise are owned by a Dutch entity, “all of the business concerning those rights took place in New York,” the go well with learn. “The sole purpose of transferring the licensing rights to the Netherlands company was to avoid the U.S. tax burden,” the go well with added.

The examine famous that Viacom transferred its mental property rights to a subsidiary in Britain in 2015 whereas retaining the Dutch entities (working as a subbranch of the British unit) because the jumping-off level for promoting international rights.

The switch — primarily a sale from one Viacom subsidiary to a different — created a tax profit, the examine mentioned. The transaction was price $1.8 billion, in response to company information cited by the examine, a sum it might amortize over a few years.

From 2015 to 2019, Viacom’s British unit collected $4.5 billion in income and gross earnings of $1.25 billion, however “the U.K. corporate income tax on their profits during this period was only about $18 million,” in response to the report. Since the amortization is taken into account an expense, the company was in a position to decrease the quantity of revenue it recorded.

President Biden’s proposed tax overhaul might stop ViacomCBS and different massive companies from exploiting these mismatches. Even so, U.S. corporations might nonetheless transfer a lot of their business overseas, since tax charges in different international locations are more likely to stay low, in response to Mr. Kadet.

“As a country,” he mentioned, “we’d be better off overall with the same rate everywhere.”

Susan Beachy contributed analysis.

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