http://www.reuters.com/article/2011/07/12/column-dcjohnston-murdoch-idUSN1E76A1NH20110712
Tue Jul 12, 2011
Reuters.com
It Pays to be Murdoch. Just as the US Government
By David Cay Johnston
David Cay Johnston is a Reuters columnist. The opinions expressed here
are his own. (Repeating for wider distribution)
July 12 (Reuters) - Rupert Murdoch may not garner as much attention for
his financial savvy as he does for his journalistic escapades, which
last week led to the shuttering of Britain's oldest tabloid. But that
doesn't make his money management any less impressive.
Indeed, when it comes to taxes, instead of rendering unto Caesar,
Murdoch has Caesar rendering unto him. See graphic:
[Note graphic is great: http://www.reuters.com/article/2011/07/12/column-dcjohnston-murdoch-idUSN1E76A1NH20110712
r.reuters.com/haf62s
Over the past four years Murdoch's U.S.-based News Corp. has made money
on income taxes. Having earned $10.4 billion in profits, News Corp.
would have been expected to pay $3.6 billion at the 35 percent
corporate tax rate. Instead, it actually collected $4.8 billion in
income tax refunds, all or nearly all from the U.S. government.
The relevant figure is the cash paid tax rate. This is the net amount
of corporate income taxes actually paid after refunds. For those four
years, it was minus 46 percent, disclosure statements show.
Even on an accounting basis, which measures taxes incurred but often
not actually paid for years, News Corp. had a tax rate of under 20
percent, little more than half the 35 percent statutory rate, company
disclosures examined by Reuters show. News Corp. had no comment.
Fox News, the editorial pages of his Wall Street Journal and other
Murdoch outlets often rail against taxes. Their attacks on government
benefits for the elderly, the sick, the jobless and children focus
attention on the uses of tax dollars and away from his aggressive
efforts to enjoy the benefits of civilization without paying for them.
Many other companies may follow similar practices but most of corporate
America doesn't own one of the country's most powerful newspaper
editorial pages.
AS EASY AS ONE, TWO, THREE
How does Murdoch make money off the tax system? There are three basic
elements, disclosure statements show.
One is the aggressive use of intra-company transactions that globally
allocate costs to locations that impose taxes -- and profits to areas
where profits can be earned tax-free.
For that Murdoch can thank laws and treaties that treat multinational
corporations much more generously than working stiffs, such as those
who make up the audience for his New York Post and for his British
tabloids with bare-breasted women. Working stiffs have their taxes
taken out of their pay before they get it, while Murdoch gets to profit
now and pay taxes by-and-by.
News Corp. has 152 subsidiaries in tax havens, including 62 in the
British Virgin Islands and 33 in the Caymans. Among the hundred largest
U.S. companies, only Citigroup and Morgan Stanley have more tax haven
subsidiaries than News Corp., a 2009 U.S. Government Accountability
Office study found.
News Corp. had nearly $7 billion permanently invested offshore in 2009,
money on which it does not have to pay taxes unless it brings the money
back to the United States. Meanwhile, it can use that money as
collateral for loans in the United States, where interest paid is a
tax-deductible expense.
WHEN IS A LOSS NOT A LOSS?
Buying companies with tax losses is a second way Murdoch can pocket,
rather than pay, taxes. In three deals to acquire American television
stations -- in 1985, 1990 and 2001 -- questions were raised about
whether Murdoch entities were in compliance with American rules
limiting the ownership stakes of foreign investors.
A memo, turned over to the Federal Communications Commission during one
of these inquiries, showed that in 1990 Murdoch's advisers were, in the
words of Michael Gardner, an outside counsel to News Corp., "in
agreement that it is paramount to avoid any corporate restructuring
which would potentially invite reexamination of Fox TV's ownership
structure" by the FCC.
In 1995, the FCC general counsel, William Kennard, said that a two-year
investigation requested by rival NBC and the National Association for
the Advancement of Colored People (NAACP) found that "Fox did not
clearly or explicitly disclose" News Corp.'s ownership stake in
American television stations as required. However, Kennard said this
lack of candor was insufficient to require a hearing into whether Fox
had intended to deceive the commission.
In contrast to News Corp.'s aggressive tax and regulatory strategies
stands The New York Times Company, which in 1993 bought the Boston
Globe in a way that did not allow it to deduct its goodwill, as is
standard practice today. The Times company has paid a cash tax rate of
71 percent over the last decade, more than twice the statutory
corporate income tax rate of 35 percent. That is because while most
companies, like News Corp., get to take more generous deductions on
their tax accounts than their shareholder accounts, the terms of the
Globe deal left the Times company in the opposite position: required to
deduct the Globe's intangible values for shareholder accounting, but
not allowed to deduct it for tax purposes.
TAXES SAVED ARE TAXES EARNED
Third, Murdoch's tax lawyers are expert at maximizing the benefits of
deferrals. Incurring a tax today, but paying it by-and-by can be
profitable. A dollar of tax deferred for 30 years, and invested at 8
percent real growth while inflation runs 3 percent, is worth more than
$10 at the end of the period, while the real value of the tax when it
is ultimately paid is just 40 cents.
Last year News Corp. had net future tax assets of $3.3 billion. In the
past four years News Corp. has either used up a lot of its tax benefits
or had them expire. In 2007 its net tax assets were $5.7 billion.
(Thomson Reuters paid a cash tax rate of 12.9 percent in the last four
years. Reuters is the Thomson Reuters news and media division.)
Murdoch assiduously courts the powers-that-be for favorable laws and
regulatory rulings. Contrast that with the rough and sometimes
relentless attacks on politicians and government programs of his
newspapers and his Fox News Channel.
Murdoch's news outlets can prove enormously helpful to politicians. His
support boosted Hillary Clinton's 2000 campaign for the U.S. Senate
from New York, helping her to beat Republican Rick Lazio. Murdoch even
hosted a Clinton re-election campaign fundraiser in 2006, while
restraining New York Post gossip mongers who looked on her husband as
red meat in the White House.
Murdoch gets invited to weddings and celebrations of top American,
British and Chinese officials. He flew Tony Blair halfway around the
world to a company event in Australia when the future British prime
minister was opposition leader.
Imagine how well Jesus might have done if he had put a corporate jet at
Caesar's disposal. Or if he had a tabloid like the News of the World to
put Caesar in fear of him. (Editing by Howard Goller)