Introduction – ViacomCBS Corporate Income Tax Regulations
ViacomCBS is a multinational media company that owns the rights to several blockbuster franchises, including Teenage Mutant Ninja Turtles, SpongeBob, and Transformers. ViacomCBS is under investigation on allegations that the media conglomerate went to great lengths to avoid paying billions in corporate taxes to the United States (US) government, according to the New York Times. The New York Times said the media conglomerate avoids exploiting loopholes in which it licenses the international rights of its blockbuster franchises, including the Teenage Mutant Ninja Turtles, and credits the revenue from its overseas titles. According to the New York Times, it is common practice for multinational corporations to structure their tax affairs by taking advantage of tax havens.
In 2016, a former Viacom executive objected to the above strategy and sued the company for “retaliatory firing” after commenting on what she believed to be “illegal tax avoidance programs in violation of federal law”. Eventually both parties came to an agreement, but the terms of the deal are sealed. However, the details of the lawsuit have been released which appear to reflect the tax scheme mentioned above. In the lawsuit, the former Viacom executive accused Viacom of devising a plan to credit the Netherlands with proceeds from the Teenage Mutant Ninja Turtles franchise in order to evade its U.S. corporate tax obligations. According to the New York Times, the lawsuit states that while the rights to the Teenage Mutant Ninja Turtles franchise are owned by a Dutch company, “all business relating to those rights was in New York.”
In May 2021, the Center for Research on Multinational Corporations (SOMO) released a report entitled “Keep Watching,” which examines “ViacomCBS’s Tax Avoidance Structures” and the ongoing challenges associated with taxing multinational corporations. According to Keep Watching, ViacomCBS and its predecessors (Viacom and CBS) have avoided paying the US government $ 3.96 billion in US corporate tax since 2002 by transferring the international rights of their franchises to their Barbados subsidiaries, Bahamas, Luxembourg, Netherlands and Great Britain.
According to the Center for Research on Multinational Corporations, media companies such as Disney, Netflix, and ViacomCBS produce digital content, including but not limited to television shows, films, and subscription channels, that reach millions of consumers worldwide. Digital content such as television shows, films and subscription channels are intangible assets that are protected by intellectual property rights and can easily be moved from one jurisdiction to another. In this context, the Center for Research on Multinational Corporations explains that media companies like Disney, Netflix and ViacomCBS can shift large parts of their global revenues to low-tax countries like the Netherlands, where the majority of the revenues remain untaxed. Additionally, for every dollar Viacom raised overseas for the Transformer franchise, less than a penny is subject to corporate tax, according to the Keep Watching report.
According to the New York Times, ViacomCBS issued a statement stating that it is maintaining its overseas locations “for core strategic business purposes, not for perceived tax benefits.” In addition, ViacomCBS’s statement denied the results of the “Keep Watching” report, adding that the report was “deeply flawed and misleading” and “shows a fundamental misunderstanding of US tax law.”
While ViacomCBS’s tax regimes seem legal, media conglomerates like ViacomCBS use different tax regimes around the world, according to the New York Times. For example, income generated by ViacomCBS that is considered taxable in the United States may be tax-exempt in the Netherlands.
In May 2020, the Group of Seven (G7) Counties reached an agreement to tax multinational corporations, including but not limited to Facebook, Apple, Amazon, Google, and ViacomCBS, in order to introduce a worldwide minimum corporate tax rate. According to the CBC, the agreement reached by the G7 countries has two pillars: (1) Countries in which multinational corporations do their business have tax rights on at least 20% of all profits generated (by multinational corporations) above a margin of 10%, and ( 2) a global business rate of at least 15 percent would be introduced from country to country. The purpose of the above agreement is to prevent countries from competing with each other by lowering their tax rates and to prevent multinational corporations from escaping their corporate tax obligations. According to Global News, while it’s too early to know which Canadian companies may be affected by the global minimum corporate tax rate, efforts to achieve a 15 percent minimum tax rate could potentially help Canada by promoting transparency and fairness across Canada Tax promote 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 foreign profits of US companies. The purpose of this proposal is to prevent countries from competing with each other by lowering their tax rates and to discourage multinational corporations from moving their intangible assets and related profits overseas. For example, to compete with other European countries, the New York Times explains that the Dutch tax authorities have allowed certain multinational corporations to pay taxes on just 0.8 percent of “international distribution rights licensing” revenues. In particular, President Biden’s tax proposal aims to prevent multinational corporations like ViacomCBS from evading their corporate tax obligations in the United States.
Concerns related to ViacomCBS’s corporate tax regime
The Keep Watching report outlines some of the ongoing challenges with multinational corporate tax regimes. In connection with ViacomCBS, the United States is losing significant amounts of corporate tax due to ViacomCBS’s tax structure, while the media group is taking advantage of international tax avoidance programs. According to the “Keep Watching” report, at least $ 32.5 billion in revenue was generated by ViacomCBS companies in the Netherlands between 2002 and 2019.
As mentioned earlier, intellectual property rights can easily be relocated from one jurisdiction to another. According to the “Keep Watching” report, most intellectual property license relocations have been undertaken “both nationally and internationally” based on relevant laws and regulations. According to the New York Times, media conglomerates like ViacomCBS are taking advantage of the intangible nature of their products and moving licensing rights from one jurisdiction to another “is just a matter of paperwork”. According to the “Keep Watching” report, multinational corporations like ViacomCBS are implementing adaptable tax structures to thwart tax laws and regulations that would increase their corporate tax obligations.
Pro Tax Tips – The Corporate Income Tax Regulations of Multinational Corporations
Tax avoidance occurs when multinational corporations like ViacomCBS implement tax structures and regulations that are inconsistent with the general intent of the law. The Canada Revenue Agency (CRA) actively implements initiatives aimed at addressing issues related to international tax evasion and aggressive tax avoidance, and promoting transparency and fairness across the Canadian tax system. In July 2021, the CRA announced that it would receive $ 606 million in new funding over the next five years to support tax audit programs aimed at international tax evasion and aggressive tax avoidance.
If you have any questions about corporate income tax or the use of offshore companies for a Canadian corporate structure under the Canadian tax system, please contact one of our leading Canadian tax attorneys for appropriate tax advice on properly structuring or resolving your compliance issues get to avoid penalties and possible prosecution for tax evasion. It is important to recognize that Canadian transfer pricing regulations require concurrent documentation that determines the fair market value of the goods or services when entering into an arrangement with an offshore affiliate.
If you or your company has unreported income, it may qualify for relief through CRA’s Voluntary Disclosure Program (VDP). Voluntary disclosure, also known as tax amnesty, is a complex area of law that requires detailed analysis and advice from an experienced Canadian tax attorney. Consider reaching out to our Canadian Certified Tax Attorney for Tax Advisory Services for appropriate tax advice regarding a potential voluntary disclosure request.
The purpose of the Voluntary Disclosure Program is to prevent “tax evasion and aggressive tax avoidance” in order to ensure a tax system that is responsive and fair for all Canadians. Canada’s voluntary disclosure program promotes regulatory compliance and enables taxpayers, including businesses, to (1) voluntarily correct inaccurate or incomplete information; and / or (2) disclose to the CRA information that has not been previously reported. Canadian taxpayers who have unreported income may be eligible for penalty relief and partial interest relief under the Canadian Voluntary Disclosure Program. A valid application for the Voluntary Disclosure Program must:
- Be “Voluntary”;
- Be “complete”;
- Take into account the payment of the estimated outstanding taxes. A taxpayer who is unable to make such a payment at the time of filing the application may request consideration for a “payment arrangement”;
- Include information about income tax that is at least one year past due;
- Include information about GST / HST for at least one overdue reporting period.
To qualify for the Voluntary Disclosure Program Exemption, the taxpayer must submit a complete application for the program and meet the above requirements. If you have unreported income or would like adequate tax planning to reduce your tax burden, please contact our tax office for tax advice from one of our leading Canadian tax lawyers.
The content of this article is intended to provide general guidance on the subject. Expert advice should be sought regarding your specific circumstances.