A new study asserts that the parent company of “Spongebob” saved billions in U.S. taxes through international tax shelters. Paramount Animation
Of tax shelters and ‘Transformers’
Our Times colleague Ed Lee, who wrote about a study finding that ViacomCBS used overseas tax shelters to avoid paying billions in U.S. taxes, goes deeper into the story for us:
Every multinational takes advantage of tax shelters, but the way ViacomCBS does it is particularly fascinating. The company behind the “SpongeBob,” “Mission Impossible” and “Transformers” franchises has avoided paying $4 billion in U.S. corporate income tax since 2002, according to a study from a Dutch nonprofit.
The report focused on how ViacomCBS exploited mismatches between tax codes across different regions when licensing its TV shows and films — made mostly in the U.S. — overseas. The arrangements appear to be legal; ViacomCBS has disputed the study as “deeply flawed and misleading” and said that it “fulfills its tax obligations in all 180-plus countries and the territories” in which it operates, and that all its revenues “are fully taxed in relevant jurisdictions around the world, including the United States, as required by applicable law.”
One of the study’s authors, Maarten Hietland, told me that “no research has specifically focused on the role of companies heavily relying on I.P.,” referring to intellectual property. Unlike companies that rely on physical goods, a media business like ViacomCBS can transfer the foreign rights to “Transformers” like flipping a switch.
The Trump administration tried to tackle the issue in its 2017 overhaul of the tax code, but ViacomCBS was able to get around some of those rules through an even more elaborate system. (The Biden administration is taking its own crack at the problem.)
Here’s how one tactic worked, according to the study:
- Viacom shifted international licensing rights from its Dutch subsidiary to its British subsidiary. The transfer — essentially a sale from one ViacomCBS subsidiary to another — created a tax benefit, since the transaction was worth $1.8 billion, a sum that could be amortized over many years.
When it comes to clever tax plans and deals, we tend to think of instances like John Malone’s intricately designed projects — but we often don’t consider the many smaller transactions that find their way around such systems. And $4 billion is still a lot of money, even if it’s happening in million-dollar increments.