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Thursday, March 25, 1999 Published at 13:04 GMT


Tax free: Rupert Murdoch's zero status



As the end of the financial year beckons, your eyes may wander to how much tax you have paid over the last 12 months. How nice it would be not to have to pay quite so much, you may conclude.

The former New York property developer Leona Helmsley once famously opined that only little people pay taxes. Unfortuntely for her, a judge took issue and sentenced Ms Helmsley to four years' imprisonment for $1.2m tax evasion.

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Media baron Rupert Murdoch stands accused of no such wrong-doing. But the reputation of his myriad companies for tax avoidance - using legally safe loopholes to reduce tax payments - has been well documented.

A report in this week's Economist newspaper offers an intruiging update. It states that in the four years to 30 June last year, Mr Murdoch's News Corporation and its subsidiaries paid only A$325m (128m) in corporate taxes worldwide. That translates as 6% of the A$5.4bn consolidated pre-tax profits for the same period.

By comparison another multi-national media empire, Disney, paid 31%.

The corporate tax rates for the three main countries in which News Corp operates - Australia, the United States and the UK - are 36%, 35% and 30% respectively.


[ image: Disney: Paid 31% next to News Corp's 6%]
Disney: Paid 31% next to News Corp's 6%
Further research reveals that Mr Murdoch's main British holding company, Newscorp Investments, has paid no net corporation tax within these shores over the past 11 years. This is despite accumulated pre-tax profits of nearly 1.4bn. Payments were made in some years, but in others rebates were claimed.

The Newscorp Investments stable includes newspapers such as The Times and The Sun as well as a 40% share in the satellite broadcaster BSkyB. Had it paid the full 30% rate on its 1998 profit of 309m, it would have netted the Exchequer 92m. (Enough to buy thousands of school textbooks, something that the Murdoch press is currently encouraging parents to do by way of collecting newspaper tokens.)

But while just about any company worth its stock valuation will seek to trim its annual tax bill, Mr Murdoch's die-hard loyalty to the tax loophole has drawn wide criticism.

Complexity puts off investors

It's impossible to know exactly how News Corp achieves such tax "efficiency". Despite being a quoted company, and therefore having to file accounts for public inspection, its financial make-up is a baffling web of inter-relationships between subsidiaries spread across the world.

Such opaqueness is thought to deter potential investors and therefore goes someway to explaining the downside of minimising tax payments.

However, analysts suggest Mr Murdoch's team broadly employ three strategies:

  • Tax relief claimed on debt interest repayments.
  • A reliance on off-shore tax havens.
  • Exploiting global differences in accounting standards.

The first principle, which effectively allows companies to off-set profits against previous losses, is well established, says Iain Stewart, a partner with the accountancy firm KPMG.


[ image: News Corps financial report - details the group's accounts]
News Corps financial report - details the group's accounts
"If you were going into a country with a high tax rate you would tend to finance any investment into that country using debt," he says.

This effectively involves getting the holding company to lend money to the newly-formed, loss-making company.

About 60 News Corp subsidiaries are incorporated in tax havens such as the Cayman Islands, Bermuda and the British Virgin Islands.

No- or low-tax havens are a tried and tested method of minimising contributions to the public coffers. Havens such as the Isle of Man and Jersey simply require companies not trading there to make an annual one-off corporation tax payment.

Hong Kong, now a part of China, where Mr Murdoch is conducting an increasing amount of business, has a corporation tax rate which, at 17%, is more than half that of the US.

International dealings

News Corp's status as a truly multinational company enables it to make the most of varying accounting standards around the world. Australia, for example, where the company is incorporated, has some of the most relaxed accounting principles in the developed world.

Although tax avoidance, as practised by News Corp, is well within the law, the general public struggles to sympathise. But Mr Stewart calls for a wider understanding, saying tax avoidance is merely a counter to "tax nothings" - instances, such as creating employment, which go unrewarded by the taxman, despite helping the Exchequer.

And the higher the rates, the more likely they are to be avoided, he says.

"When the UK used to have 52% corporation tax, companies did so much in avoidance they used to end up paying 10%. Now it's 30% and companies in general pay 30%."


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