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

Critically rejected and devoured by fans, “Transformers: Age of Extinction” was the best film at the box office of 2014, grossing $ 1.1 billion, of which more than three-quarters of that came from overseas. .

Paramount Pictures of ViacomCBS, which distributed the computer-animated action festival, saved much of that money by licensing international rights through a complex strategy designed to avoid paying U.S. taxes, according to a published study Tuesday by the Center for Research on Multinational Corporations, a non-profit group partly funded by the Dutch Ministry of Foreign Affairs.

It is common for multinational companies to take advantage of tax shelters. The report offers rare insight into how successful a business has been.

ViacomCBS, a media giant born after the 2019 merger of sister companies, used the same strategy for all of its entertainment properties, according to the report.

Since 2002, ViacomCBS and its predecessors Viacom and CBS have together avoided paying $ 3.96 billion in corporate tax in the United States through a system that involved subsidiaries in Barbados, Bahamas, Luxembourg, Netherlands and Great Britain, according to the report.

Much of the $ 30 billion in non-US royalty revenue generated by the company’s film and television franchises, such as “SpongeBob,” “Star Trek,” and “Mission: Impossible,” has not been submitted to the corporate tax, according to the study.

ViacomCBS disputed the study’s findings, saying in a statement that it was “deeply flawed and misleading” and “demonstrated a fundamental misunderstanding of US tax law.”

“It is filled with false characterizations, significant omissions and many false claims,” ​​the company said in a statement. “ViacomCBS meets its tax obligations in more than 180 countries and territories in which we operate, and all of our income – including that identified in this report – is fully taxed in relevant jurisdictions around the world, including the United States, such as required by applicable law. . “

ViacomCBS added that its “overall effective tax rate” was 32.6% for Viacom between 2006 and 2019 and 33.8% for CBS during this period.

The ViacomCBS Tax Structure Study came out weeks after President Biden proposed a minimum 15% overseas profit tax for U.S. businesses, an effort to prevent countries from competing by lowering their tax rates. The suggested overall rate is part of a larger plan to overhaul the tax code that would raise U.S. corporate tax to 28%, from 21%.

ViacomCBS, which is led by Shari Redstone, has sought to take advantage of the ever-changing tax laws in other countries in a “cat-and-mouse” game, according to the study. Before the merger, Viacom and CBS, both of which were controlled by the Redstone family, used the same strategy of transferring foreign intellectual property license rights to subsidiaries outside the United States when rates became more favorable, according to The report.

The Multinational Companies Research Center said it chose to focus on ViacomCBS because it had established a number of Dutch subsidiaries, known as letterbox companies, to absorb large amounts of revenue from television.

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

ViacomCBS said in its statement that it has overseas locations “for strategic business purposes and not for perceived tax benefits.” The statement added that in the Netherlands, the company has 300 employees and a production studio and generates “$ 1 billion in annual revenue outside of licenses.”

Licensing, or royalty income, has always been a big part of the business, accounting for around 24% of annual sales since 2018. Media businesses are now driven by streaming, a relatively new business that is losing money. as she tries to attract as many subscribers as possible from all over the world.

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

Jeffery Kadet, an international tax expert and instructor at the University of Washington Law School, said the measures amounted to personal transactions.

“If you take money or other assets as license fees and move them from one branch to another, have you done something that changes the whole group economically? The answer is you didn’t, ”he says. “It’s like taking a dollar bill out of your left front pocket and moving it to your right back pocket. You still have the dollar.

ViacomCBS’s tax provisions, which appear to be legal, take advantage of disparate tax codes from country to country, according to the study. Income which may be considered taxable in the United States may be considered exempt from such levies in the Netherlands, for example.

Since 2002, tax specialists working for Viacom, CBS and ViacomCBS have devised structures to take advantage of these mismatches, thereby lowering its taxable income, according to the study. Almost all of these plans were for one country: the Netherlands.

The Dutch tax authorities, in an effort to compete with other European countries, offered rulings favorable to multinational companies, allowing some companies to pay taxes on just 0.8% on income from international distribution rights licenses. In other words, for every dollar that Viacom raised overseas for a blockbuster like “Transformers” (after converting reals, lira, or renminbi), less than a penny was likely subject to corporate tax, according to the study.

The Dutch authorities have created what tax experts call a “conduit” system in which most, if not all, of a U.S. company’s international income is channeled to a region with favorable tax codes. Alphabet, Starbucks, Dell and others American companies also had units in the Netherlands.

ViacomCBS – and its predecessor companies – have established several subsidiaries in the Netherlands to hold foreign license rights to their television programs and films, content largely created in the United States. The companies then used the subsidiaries as a springboard to sublicense these rights in other markets. The money for these transactions goes to Dutch entities, where most of it is not subject to corporate tax.

A Viacom executive objected to the strategy. In 2016, she filed a lawsuit against the company for “dismissal in retaliation” after speaking out about what she saw as “an illegal tax evasion scheme in violation of federal law.” (A few months after the complaint was filed, the two sides settled down and the terms were not disclosed. “We thought the claims were without merit and the case was resolved,” the company said.)

In the lawsuit, the executive accused Viacom of “devising a plan to allocate” the income from the popular “Teenage Mutant Ninja Turtles” franchise to the Netherlands for tax benefits. While the rights to the franchise belong to a Dutch entity, “all the cases regarding these rights took place in New York,” the lawsuit reads. “The sole purpose of transferring the license rights to the Dutch company was to avoid the US tax burden,” the lawsuit added.

The study noted that Viacom transferred its intellectual property rights to a subsidiary in Great Britain in 2015 while keeping the Dutch entities (operating as a sub-branch of the UK unit) as a starting point for the sale. foreign rights.

The transfer – essentially a sale from one Viacom subsidiary to another – created a tax advantage, according to the study. The transaction was worth $ 1.8 billion, according to company records cited by the study, an amount it can amortize over many years.

From 2015 to 2019, the UK unit of Viacom collected $ 4.5 billion in revenue and gross profits of $ 1.25 billion, but ‘UK corporate income tax during this period n ‘was only about $ 18 million,’ according to the report. Since depreciation is considered an expense, the company was able to reduce the amount of profit it recorded.

The tax overhaul proposed by President Biden could prevent ViacomCBS and other large companies from exploiting these mismatches. Even so, U.S. companies could still move much of their business overseas, as tax rates in other countries are likely to remain low, Kadet said.

“As a country,” he said, “we would be better off overall with the same rate everywhere.”

Susan Beachy contributed to the research.


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