ViacomCBS, a self-described “fundamental content company,” is one of the world’s largest content producers, with multi-million or even billion-dollar franchises like Transformers, SpongeBob SquarePants, Mission: Impossible, and Star Trek. However, those franchises, SpongeBob and Transformers particularly, cost the U.S. taxpayers incredible amounts of money, as the company has dodged taxation of its intellectual property since 2002, denting the U.S. budget by as much as $3.96 billion in income tax.
ViacomCBS’s Paramount Pictures, which distributed the critically unfavored Transformers The Age of Extinction, saved much of the movie’s box office earnings by licensing the IP through a complex, labyrinthine strategy designed to avoid paying U.S. taxes, as stated by The New York Times. Their article points towards a study conducted by the Centre for Research on Multinational Corporations, which claims that ViacomCBS dodged paying substantial sums of U.S. corporate income tax by using a system involving subsidiaries in overseas countries, like Barbados, Bahamas, Luxemburg, Britain, and the Netherlands.
It’s not rare to see multinational corporations taking advantage of tax shelters by exploiting the differences in taxation laws – in fact; it’s common practice. For ViacomCBS, saving themselves money while making Transformers 4 was as simple as transferring their intellectual property from one jurisdiction to the other. And therein lies the beauty and malevolence of their tax-avoiding structure. By their very nature, intellectual property rights (IPs) are considered intangible “goods” represented as intangible assets on balance sheets. This means that they’re easily transferable from one jurisdiction to the other or any jurisdiction with the most favorable taxation laws at a given time.
In later sections of the report breakdown ViacomCBS’s income tax evasion over the last two decades, which consists of sublicensing their IPs to Dutch-based subsidiaries to distribute their high-grossing content, like the aforementioned Transformers movie, outside North America. As a result, approximately $32 billion in revenue was collected by ViacomCBS’s Dutch-based subsidiary from 2002 to 2019, allowing the company to avoid U.S. corporate income tax payments totaling $1.46 billion for CBS and an estimated $2 billion for Viacom. If it sounds like some Al Capone tax evasion scheme – it kind of is, and it’s perfectly legal.
Dutch tax authorities offer favorable rulings to multinational corporations in an effort to compete with other European countries, allowing companies to pay taxes on only 0.8% of revenue from licensing international distribution rights. In other words, ViacomCBS only had to pay slightly over $11 million for Transformers: The Age of Extinction’s box office earnings of over $1 billion. And that’s only one of the company’s many IPs. The actual numbers total at around $30 billion worth of non-U.S. royalty revenue garnered by ViacomCBS’s franchises that haven’t been subject to corporate taxes.
It’s worth noting that ViacomCBS isn’t the only corporation with Dutch-based subsidiaries. While they’ve used Dutch laws to save themselves millions making movies like Transformers, others have done the same. Large corporations like Dell, Starbucks, Alphabet, and other U.S. companies all have one thing in common – Dutch-based subsidiaries, which allow the companies to funnel their international income by exploiting friendly tax codes. However, suppose you ask any of those companies about their tax evasion practices. In that case, they’ll say that all of their revenue is fully taxed in relevant jurisdictions around the world, and in the U.S., as required by applicable tax laws and legislations. And it really is.