Corporate Tax Preparations Of ViacomCBS & Tax Avoidance Schemes – Tax

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.

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