Introduction – Corporate Tax Arrangements of ViacomCBS
ViacomCBS is a multinational media corporation that owns the
rights to multiple blockbuster franchises including Teenage Mutant
Ninja Turtles, SpongeBob and Transformers. According to the New
York Times, ViacomCBS is under scrutiny for allegations that the
media conglomerate has been going to great lengths in order to
avoid paying billions in corporate taxes to the United States (US)
government. The New York Times explained, the media conglomerate is
avoiding using loopholes where it licensed the international rights
of and attributed the revenue from its blockbuster franchises,
including the Teenage Mutant Ninja Turtles, to its foreign
entitles. According to the New York Times, it is a common practice
for multinational corporation to structure their tax affairs by
taking advantage of tax shelters.
In 2016, a former Viacom executive objected to the above-noted
strategy and sued the company for “retaliatory firing”
after speaking up about what she considered to be “an illegal
tax avoidance scheme in violation of federal law”. Eventually,
both parties settled, yet the terms of settlement are sealed.
However, the details of the lawsuit have been made public, which
appear to echo the above-noted tax scheme. In the lawsuit, the
former Viacom executive accused Viacom of devising a plan to
attribute revenue from the Teenage Mutant Ninja Turtles franchise
to the Netherlands to avoid its US corporate tax obligations.
According to the New York Times, the lawsuit explains that while
the rights to the Teenage Mutant Ninja Turtles franchise are owned
by a Dutch entity, “all of the business concerning those
rights took place in New York”.
In May 2021, the Centre for Research on Multinational
Corporations (SOMO) released a report titled “Keep
Watching” which explores the “tax avoidance structures of
ViacomCBS” as well as the ongoing challenges associated with
the taxation of multinational corporations. According to “Keep
Watching”, since 2002, ViacomCBS and its predecessor companies
(Viacom and CBS) avoided paying the US government $3.96 billion in
US corporate income tax by licensing the international rights of
its franchises to its subsidiaries in Barbados, the Bahamas,
Luxembourg, the Netherlands and Britain.
According to the Centre for Research on Multinational
Corporations, media companies like Disney, Netflix and ViacomCBS
produce digital content including, but not limited to, television
shows, movies, and subscription channels that reach millions of
consumers worldwide. Digital content such as television shows,
movies, and subscription channels are intangible assets which are
protected by intellectual property rights and can easily be
relocated from one jurisdiction to another. In this context, the
Centre for Research on Multinational Corporations explains that
media companies like Disney, Netflix and ViacomCBS can relocate
large parts of their worldwide revenue to low tax jurisdictions,
such as the Netherlands, where most of the revenue remains untaxed.
Further, according to the “Keep Watching” report, for
every dollar that Viacom collected overseas for the Transformer
franchise, less than one penny was subject to corporate income
tax.
According to the New York Times, ViacomCBS released a statement
indicating that it maintained its overseas locations “for
core, strategic business purposes, and not for any perceived tax
benefits”. In addition, ViacomCBS’s statement disputed the
findings in the “Keep Watching” report and added that the
report was “deeply flawed and misleading” and that it
“demonstrates a fundamental misunderstanding of U.S. tax
law”.
According to the New York Times, while ViacomCBS’s tax
arrangements appear to be legal, media conglomerate including
ViacomCBS take advantage of disparate tax rules worldwide. For
instance, income earned by ViacomCBS that may be deemed to be
taxable in the United States may be free from levies in
Netherlands.
In May 2020, an agreement was reached by the Group of Seven (G7)
counties to tax multinational corporations including, but not
limited to, Facebook, Apple, Amazon, Google and ViacomCBS, by way
of implementing a minimum global corporate taxation rate. According
to CBC, the agreement reached by the G7 countries has two pillars:
(1) countries in which multinational corporations conduct their
business will have taxation rights to at least 20% of any profits
earned (by multinational corporations) above a 10% margin, and (2)
a minimum global corporate rate of at least 15 percent would be
implemented on a country-by-country basis. The purpose of the
above-noted agreement is to prohibit countries from competing with
one another by way of lowering their tax rates and to prevent
multinational corporations from escaping their corporate tax
obligations. According to Global News, while it is too early to
know which Canadian corporations may be impact by the minimum
global corporate taxation rate, working towards a minimum a 15
precent minimum global corporate taxation rate could potentially
help Canada by encouraging transparency and fairness throughout
Canada’s tax system.
According to the New York Times, the “Keep Watching”
report was released a few weeks after President Biden proposed a 15
percent minimum tax on overseas profits earned by US companies. The
purpose of this proposal is to prohibit countries from competing
with one another by way of lowering their tax rates and to
discourage multinational corporations from moving their intangible
assets and its related profits overseas. For instance, the New York
Times explains, in order to compete with other European countries,
Dutch tax authorities have allowed certain multinational
corporations to pay taxes on just 0.8 percent of revenue earned
from “licensing international distribution rights”. In
particular, President Biden’s tax proposal aims to prevent
multinational corporations, such as ViacomCBS, from escaping their
corporate tax obligations in the United States.
Concerns Associated with the Corporate Tax Arrangements of
ViacomCBS
The “Keep Watching” report sets out some of the
ongoing challenges associated with multinational corporate tax
arrangements. In context of ViacomCBS, the United States is losing
substantial amounts of corporate income tax due to ViacomCBS’s
tax structure while the media conglomerate is taking advantage of
international tax avoidance schemes. According to the “Keep
Watching” report, between 2002 and 2019, at least $32.5
billion in revenues was collected by the ViacomCBS entities in the
Netherlands.
As previously mentioned, intellectual property rights can easily
be relocated from one jurisdiction to another. According to the
“Keep Watching” report, most of the relocation in
intellectual property licensing rights have been made based on
relevant laws and regulations “at both the national and
international level”. According to the New York Times, media
conglomerate like ViacomCBS are taking advantage of the intangible
nature of their products and moving licensing rights around from
one jurisdiction to another “is just a matter of
paperwork”. According to the “Keep Watching” report,
multinational corporations like ViacomCBS implement adaptable tax
structures to thwart fiscal laws and regulations that would
increase their corporate tax obligations.
Pro Tax Tips – The Corporate Tax Arrangements of Multinational
Corporations
Tax avoidance occurs when multinational corporations, such as
ViacomCBS, implement tax structures and arrangements that are
inconsistent with the overall intent of the law. The Canada Revenue
Agency (CRA) is actively implementing initiatives aimed at
addressing issues pertaining to international tax evasion and aggressive tax avoidance and
encouraging transparency and fairness throughout Canada’s tax
system. In July 2021, the CRA announced that over the next five
years it will have $606 million dollars in new funding to support
tax audit programs that target international
tax evasion and aggressive tax avoidance.
If you have questions concerning corporate income taxation or
the use of offshore entities for a Canadian business structure
under Canada’s tax system, contact one of our top Canadian tax
lawyers for appropriate tax guidance with respect to appropriate
structuring or remedying your compliance issues to avoid penalties
and potential tax evasion prosecution. It is important to recognize
that Canadian transfer pricing rules require contemporaneous
documentation establishing the fair market value of the goods or
services when an agreement is made with a related offshore
entity.
If you or your corporation have unreported income earned, it may
qualify for relief through CRA’s voluntary-disclosures program
(VDP). Voluntary disclosures, also known as tax amnesty, are a
complex area of law that requires detailed analysis and advice from
an experienced Canadian tax lawyer. Consider contacting our
certified specialist in taxation Canadian tax lawyer for
appropriate tax guidance with respect to a possible voluntary
disclosure application.
The purpose of the Voluntary Disclosures Program is the
avoidance of “tax evasion and aggressive tax avoidance”
to ensure a tax system that is responsive and fair for all
Canadians. Canada’s Voluntary Disclosures Program promotes
compliance with the law and allows taxpayers, including
corporations, the opportunity to voluntarily (1) correct inaccurate
or incomplete information; and/or (2) disclose to the CRA
information which was not previously reported. Canadian taxpayers
who have unreported income may be eligible for penalty relief and
partial interest relief under Canada’s Voluntary Disclosures
Program. A valid Voluntary Disclosures Program application
must:
- Be “voluntary”;
- Be “complete”;
- Include payment of the estimated taxes owing. A taxpayer who is
not capable of making such payment at the time of the application
may request consideration for a “payment
arrangement”; - Include information pertaining to income tax that is at least
one year past due; - Include information pertaining to GST/HST for at least one
reporting period that is past due.
To qualify for the relief under the Voluntary Disclosures
Program, the taxpayer must submit a complete application to the
program and meet its above-mentioned requirements. If you have
unreported income or would like appropriate tax planning to reduce your tax burden please
contact our tax law office for tax guidance from one of our top
Canadian tax lawyers.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.