Paramount Pictures has found a way to avoid paying taxes on franchises including Spongebob Squarepants, Mission: Impossible, and Star Trek by routing revenue from international licensing through a complicated network of foreign subsidiaries, according to a new study.
Researchers with the nonprofit Centre for Research on Multinational Corporations, partially funded by the Dutch government, released a report indicating the ViacomCBS-owned company has saved around $US3.96 ($5) billion in U.S. corporate taxes since 2002 by shlepping it through Barbados, the Bahamas, Luxembourg, the Netherlands, and Britain.
This is true of all of ViacomCBS’s (and those of its predecessors, Viacom and CBS) entertainment properties, the researchers wrote. All told, most of the $US30 ($38) billion in royalty revenue the companies brought in from outside the U.S. never saw the tax collector take a dime. The New York Times characterised the report as showing the Redstone family, which controlled both companies before the merger and currently has member Shari Redstone as CEO of ViacomCBS, played a “cat and mouse” game in which they shifted tax liability around to the countries offering the most favourable rates. Viacom originally split from CBS in 2006 but re-merged in 2019 once it became a convenient way to scale against rival megacorporations like Disney/Fox, AT&T/Time Warner, and streaming giants.
Report co-author Maarten Hietland told the Times that most of the shell companies involved didn’t even bother to hire a single employee (not that doing so is necessary, as the revised tax structure exists solely on paper). The Netherlands, in particular, was central to the plan because it allows some multinational companies to set up subsidiaries there and pay taxes on as little as 0.8 per cent of revenue from distribution rights in foreign countries — using those subsidiaries, in turn, to set up even more in other countries. The report also shows that Viacom transferred some intellectual property rights to Britain, creating a massive tax benefit, before using the subsidiaries in the Netherlands for distribution.
As the Times noted, this appears to all be technically legal even when the content was made in the U.S., though a 2016 lawsuit by a former Viacom executive claimed she was fired in retaliation for challenging what she called “an illegal tax avoidance scheme in violation of federal law.”
“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,” University of Washington School of Law tax expert Jeffery Kadet asked the paper. “The answer is that you haven’t. 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 more or less told the Times that everything it was doing was legal and thus OK:
ViacomCBS disputed the findings, saying in a statement that the study was “deeply flawed and misleading” and that it “demonstrates a fundamental misunderstanding of U.S. tax law.”
“It is filled with mischaracterizations, material omissions and numerous false claims,” the company said in a statement. “ViacomCBS fulfils its tax obligations in all 180-plus 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.”
Joe Biden’s administration has sought to impose rules that might close many of the tax loopholes used by giant corporations to hide massive overseas profits from tax collectors — though he’s lowered his proposal to 15 per cent, down from the originally sought 21 per cent, in a bid for nations in the economically powerful Group of Seven to endorse imposing identical rules. Such international cooperation would be necessary to minimise the potential for multinationals to cook up new and exciting ways to shuffle away their tax obligations.
According to the Washington Post, an agreement may “eventually produce the most significant global tax shift in decades” as well as help Biden raise the U.S. corporate tax rate to 28 per cent. However, the opposition is fierce from corporate lobbyists and representatives from countries accused of operating as tax havens and shelters, as well as complicated by the simple fact that many countries might simply refuse to comply. The 15 per cent minimum tax for multinationals is separate but related to recent laws and proposals imposing taxes on digital revenue raised across national borders, a thorny issue that the U.S. has balked at in the past but the UK has demanded to be bundled together. The sought-after G7 endorsement amounts to little more than political pressure for member countries to pass legislation reforming their tax codes, which could face long odds in places like the U.S. which have bent over backward to appease corporations in their tax codes for decades.