Tuesday, July 31, 2007

Laying Rupert Bare

It looks as if Rupert Murdoch will win his battle for control of the Wall Street Journal. This potentially bodes ill for a tax justice agenda. While TJN does not see eye to eye with the Wall St. Journal in some respects, the newspaper has been very active in exposing tax dodging and other corporate abuses. Will Murdoch curb this kind of valuable journalism in future? We are worried, for his flagship company News Corp. is a poster child for tax avoidance. A while ago The Economist once prodded into its tax affairs, and what it found was not pretty.

In keeping with his anti-statist philosophy, Mr Murdoch hands very little of his profits to governments. In the four years to June 30th last year, News Corporation and its subsidiaries paid only A$325m ($238m) in corporate taxes worldwide. In the same period, its consolidated pre-tax profits were A$5.4 billion. So News Corporation has paid an effective tax rate of only around 6%. By comparison, Disney, one of the world’s other media empires, paid 31%. Basic corporate-tax rates in Australia, America and Britain, the three main countries in which News Corporation operates, are 36%, 35% and 30% respectively.

Finding out the specifics of News Corporation’s tax affairs is difficult because of the company’s complex structure. In its latest accounts, the group lists roughly 800 subsidiaries, including some 60 incorporated in such tax havens as the Cayman Islands, Bermuda, the Netherlands Antilles and the British Virgin Islands.

This structure, dictated by Mr Murdoch’s elaborate tax planning, has some bizarre consequences. The most profitable of News Corporation’s British operations in the 1990s was not the Sunday Times, or its successful satellite television business, BSkyB. It was News Publishers, a company incorporated in Bermuda. News Publishers has, in the seven years to June 30th 1996, made around £1.6 billion in net profits. This is a remarkable feat for a company that seems not to have any employees, nor any obvious source of income from outside Mr Murdoch’s companies.

British taxpayers have been forced to pick up a particularly large slice of Murdoch's tax bill: since June 1987, The Economist reported, the group made £1.4 billion in profits yet paid no net British corporation tax at all.

Even the Economist, which seems to have a soft spot for the corrupt world of tax havens, choked on this, and asked why so many other companies avoid such byzantine offshore gymnastics to dodge their tax bills.

Perhaps their tax lawyers are not as bright. Perhaps their boards are stuffed with conventional people who would be embarrassed to shelter profits in tax havens. Or, more likely, they may conclude that there are costs to Mr Murdoch’s way of doing things. In particular, the complexity of News Corporation’s structure baffles analysts and puts off institutional investors. Money men suspect that the company’s profits may be based not just on the returns from Mr Murdoch’s businesses, but also on financial wizardry vulnerable to changes in tax law. This may be one reason why its share price has underperformed the American stockmarket over the past five years. A low share price makes investment more expensive for Mr Murdoch than it would be were he an empire-builder with a more transparent business structure.

This article is, admittedly, a bit long in the tooth. It was published in March 1999. TJN does not have the resources to investigate 800 or more subsidiaries to update this story. Perhaps Rupert Murdoch has had an epiphany since then, and has decided to stop his anti-social behaviour. We are not convinced that this has happened.


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