How ViacomCBS Content Deals Cost US Taxpayers $ 4 Billion

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Critically rejected and enthusiastic by fans, Transformers: The Age of Extinction became the highest grossing film of 2014, grossing $ 1.1 billion, with more than three-quarters of that dollars coming from abroad.

Paramount Pictures for ViacomCBS, which distributed the computer animated action festival, saved most of that money by licensing international rights through a sophisticated strategy to avoid paying US taxes. study published on Tuesday the Center for Research of Multinational Corporations, non-profit group funded in part by the Dutch Ministry of Foreign Affairs.

Using tax havens for multinationals is common practice. The report offers a rare glimpse into how one company did it.

Media giant ViacomCBS, which emerged after a 2019 merger of subsidiaries, has used the same strategy for all of its entertainment properties, according to the report.

Since 2002, ViacomCBS and its predecessors, Viacom and CBS, have jointly avoided paying $ 3.96 billion in income taxes through a system that involved subsidiaries in Barbados, the Bahamas, Luxembourg, the Netherlands and the United Kingdom, according to the report.

The study found that most of the $ 30 billion in royalties from films and television series such as SpongeBob, Star Trek and Mission: Impossible were not subject to corporate taxes.

ViacomCBS challenged the findings, saying the study was “deeply flawed and misleading” and that it “demonstrates a fundamental misunderstanding of US tax laws.”

“It is filled with misconceptions, material omissions and numerous false claims,” the company said in a statement. “ViacomCBS meets its tax obligations in all of the 180+ countries and territories where we operate, and all of our income, including those shown in this report, is fully taxed in applicable jurisdictions around the world, including the United States, as required applicable law. law.”

ViacomCBS added that its “total global effective tax rate” was 32.6 percent for Viacom between 2006 and 2019 and 33.8 percent for CBS during that time period.

ViacomCBS’s tax structure study came out weeks after President Biden proposed a minimum overseas income tax of 15 percent for US companies to keep countries from competing with each other by lowering tax rates. IN proposed global rate is part of a larger plan to overhaul the tax code that will raise corporate income tax in the United States from 21 percent to 28 percent.

The study says ViacomCBS, led by Shari Redstone, is trying to take advantage of the ever-changing tax laws in other countries in a cat-and-mouse game. Prior to the merger, Viacom and CBS, controlled by the Redstone family, used the same strategy to transfer licensing rights of foreign intellectual property to subsidiaries outside the United States when rates became more favorable, the report said.

The Center for Multinational Research said it was focusing on ViacomCBS because the company created several Dutch subsidiaries, known as letterbox companies, to generate large television revenues.

“Most organizations didn’t even have a single employee,” Maarten Heathland, one of the study’s authors, said in an interview.

ViacomCBS said in a statement that it has overseas operations “for the main strategic business objectives and not for any perceived tax breaks.” The statement added that the company has 300 employees and a production studio in the Netherlands and generates “$ 1 billion in annual revenue excluding licensing.”

Licensing, or royalty income, has always been a significant part of business, which have accounted for about 24% of annual sales since 2018. Media companies now streaming-driven, a relatively new venture that is losing money trying to attract as many subscribers as possible around the world.

Unlike businesses that produce physical goods, media companies can take advantage of the intangible nature of their products. Transferring licensing rights to SpongeBob from one country to another is just a matter of paperwork.

Jeffrey Cadet, an expert on international taxation and lecturer at the University of Washington Law School, said the steps were akin to self-government.

“If you take money or other property, such as licensing rights, and move it from one subsidiary to another, will you do something that will change the group as a whole from an economic point of view? The answer is no, he said. “It’s like taking a dollar bill out of the left front pocket and putting it in the back right pocket. You still have a dollar. “

The study says ViacomCBS’s tax mechanisms, which appear to be legitimate, take advantage of different tax codes in different countries. Income that can be considered taxable in the United States can be considered exempt from such fees, for example in the Netherlands.

Since 2002, according to the study, tax experts at Viacom, CBS and ViacomCBS have developed structures to take advantage of these inconsistencies, thereby lowering taxable profits. Almost all of these plans were for one country: the Netherlands.

Dutch tax authorities, seeking to compete with other European countries, have offered multinational corporations favorable solutions, allowing some companies to pay taxes on as little as 0.8 percent of international distribution licensing revenues. In other words, the study found that for every dollar that Viacom raised abroad for a blockbuster like Transformers (converted from reais, lira, or yuan), less than a penny was likely to be subject to corporate income tax.

The Dutch government has created what tax experts call a “channel system” in which most, if not all of the US company’s international income is channeled through a region with friendly tax codes. Alphabet, Starbucks, Dell and others US companies there were also divisions in the Netherlands.

ViacomCBS – and its predecessors – set up several subsidiaries in the Netherlands to own foreign licensing rights for television programs and films, content primarily created in the United States. The companies then used the subsidiaries as a springboard to sublicense those rights to other markets. All money from these transactions is returned to Dutch companies, most of which are not subject to corporate tax.

One Viacom executive objected to this strategy. In 2016, she sued the company for “retaliatory dismissal” after talking about what she considered “an illegal tax evasion scheme in violation of federal law.” (A few months after the lawsuit was filed, both parties settled the issue and the terms were not disclosed. “We thought the claims were unfounded and the issue was resolved,” the company said.)

In the lawsuit, the executive accused Viacom of “devising a plan to credit” income from the popular Teenage Mutant Ninja Turtles franchise to the Netherlands for tax breaks. Although the rights to the franchise are owned by a Dutch company, “all business associated with these rights was conducted in New York,” the lawsuit said. “The sole purpose of transferring licensing rights to a Dutch company was to avoid the US tax burden,” the lawsuit says.

The study notes that Viacom transferred its intellectual property rights to a UK subsidiary in 2015, while retaining the Dutch companies (operating as a subsidiary of the UK subsidiary) as the starting point for the sale of foreign rights.

The study says the transfer – essentially a sale from one Viacom subsidiary to another – created a tax benefit. The deal was worth $ 1.8 billion, according to company reports cited in the study, and that amount could pay off over many years.

From 2015 to 2019, Viacom’s UK division generated $ 4.5 billion in revenue and $ 1.25 billion in gross profit, but according to the report, “UK corporate tax was only about $ 18 million during this period.” Since depreciation is considered an expense, the company was able to reduce its registered profit.

Mr. Biden’s proposed tax revision could prevent ViacomCBS and other large corporations from exploiting these inconsistencies. Regardless, US companies can still move most of their businesses overseas, as tax rates in other countries are likely to remain low, Mr Cadet said.

“As a country,” he said, “we would be better off as a whole with the same indicators everywhere.”

Susan Beachy contributed to the research.

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