It pays to be Murdoch. Just ask Uncle Sam
Reuters Jul 12, 2011 – 9:14 AM ET | Last Updated: Jul 12, 2011 9:15 AM ET
By David Cay Johnston, Comment
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.
Over the past four years Murdoch’s U.S.-based News Corp. has made money on income taxes. Having earned US$10.4 billion in profits, News Corp. would have been expected to pay US$3.6 billion at the 35% corporate tax rate. Instead, it actually collected US$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%, 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%, little more than half the 35% 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 US$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 advisors 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% over the last decade, more than twice the statutory corporate income tax rate of 35%. 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% real growth while inflation runs 3%, is worth more than US$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 US$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 US$5.7 billion.
(Thomson Reuters paid a cash tax rate of 12.9% in the last four years. Reuters is the Thomson Reuters news and media division.)
Murdoch assiduously courts the powers-that-be for favourable 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.
David Cay Johnston is a Reuters columnist. The opinions expressed here are his own.
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