Oct 25, 2023
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.
