Rupert Murdoch's Tax Play: News Corp. Lobbied For Trade Pact With Favored Tax Haven
WASHINGTON -- Rupert Murdoch's media conglomerate News Corp. lobbied in favor of the new Panama free trade pact, according to federal lobbying disclosure forms -- a pact that will make it more difficult for the U.S. government to crack down on Panama-related tax abuses. Panama is a notorious tax haven, and News Corp. also operates a subsidiary there. The company's flagship American news outlets -- The Wall Street Journal and Fox News -- reported extensively on the three free trade deals passed by Congress last week without disclosing the parent firm's lobbying activity.
In fact, News Corp. operates a total of 136 subsidiaries in nations identified as international tax havens by the Government Accountability Office -- jurisdictions where wealthy Americans and corporations can stash money to avoid paying U.S. taxes. One of those subsidiaries, Twentieth Century Fox Films, S.A., is located in Panama.
News Corp. is not alone, of course. Panama has a total annual economic output of just $26.7 billion, according to the World Bank -- less than two-tenths of one percent of the size of the U.S. economy (and about 45 percent less than the $44.75 billion stock market value of News Corp.). Nevertheless, Panama has attracted more than 400,000 offshore corporations thanks to its zero-percent tax rate and some of the strictest bank secrecy laws in the world.
The Securities and Exchange Commission requires U.S. corporations to disclose the names and locations of all their subsidiaries. But companies do not have to disclose other information that is critical to determining whether an offshore subsidiary exists for any purpose other than tax avoidance, such as the total assets and liabilities of the subsidiary.
So while News Corp. operates just one subsidiary in Panama, compared to 16 in the Cayman Islands and 26 in the British Virgin Islands, SEC filings do not indicate how significant the company's Panamanian activities are.
"A long list of tax haven subsidiaries might indicate a lot of nefarious activity, but you really only need one," said Rebecca Wilkins, senior counsel at the nonprofit Citizens for Tax Justice. "News Corp. might use a single Panama subsidiary to avoid taxes on $3 or on $3 billion. We need sales, profits, tax payments and employees reported on a country-by-country basis to get a good picture of what the multinational is really doing."
According to the company's latest annual SEC filing, News Corp. has $8.6 billion in "undistributed foreign earnings" that it plans to keep stashed abroad "indefinitely." Meanwhile, the company routinely has a U.S. federal income tax bill much lower than the oft-cited 35 percent corporate rate. Since 2003, the first year of tax data available in News Corp.'s SEC filings, Murdoch's company has paid an average federal tax rate of 15 percent, with rates below 5 percent in every year from 2003 to 2006 being offset by a big loss in 2009 and a 25 percent tax rate in 2011 (see note on calculations below).
Several other major news outlets operate subsidiaries in tax havens. CBS, for instance, has 72 subsidiaries in tax haven nations, while AOL, the owner of The Huffington Post, has two (AOL also has $15.7 million in undistributed foreign earnings permanently reinvested abroad). Neither lobbied directly on the trade deals.
The Panama trade deal was initially negotiated by President George W. Bush in 2007, but sparked a host of criticism for granting Panamanian exporters access to U.S. markets without combating the nation's tax avoidance schemes. Indeed, the trade agreement effectively bars the U.S. from cracking down on this activity. Under the agreement, the U.S. is not allowed to treat Panamanian financial services transactions differently from transactions in nations that are not known tax havens, and it cannot pursue some standard anti-money laundering techniques in Panama.
President Barack Obama attempted to assuage these concerns by reaching a Tax Information Exchange Agreement with Panama, but as HuffPost has reported, the deal relies on an outdated model that is unlikely to provide the Internal Revenue Service with enough information to crack down on abusive tax schemes, in part because it does not require that U.S. tax authorities be automatically notified when Americans deposit money in Panama.
In addition to its Panamanian subsidiary, News Corp. operates two subsidiaries in Colombia and three in South Korea, the two other countries with which Congress passed trade deals on Oct. 12. News Corp. lobbied on the Korea and Colombia agreements as well, according to lobbying disclosure forms.
Both Fox News and the Journal have reported extensively on the Panama and Korea deals without disclosing that their parent company was lobbying in favor of them. The Journal has also published multiple op-eds and editorials advocating for the agreements without disclosing its parent company's lobbying. The Journal declined to comment, and a spokesperson for Fox Broadcasting referred HuffPost to News Corp.'s corporate spokespeople, who did not respond to requests for comment.
Note: HuffPost calculated News Corp.'s tax rates by dividing the "current federal income tax" number reported in SEC filings by the company's total U.S. profits minus state and local taxes. In 2007, for instance, total state and local taxes of $69 million were subtracted from News Corp.'s total U.S. profits of $4.586 billion, resulting in a profit net of state and local taxes of $4.517 billion. Current federal income tax paid was $281 million. Divide $281 million by $4.517 billion to arrive at a 2007 federal income tax rate for News Corp. of 6.2 percent.
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First Posted: 10/19/2011 11:23 am Updated: 06/19/2012 8:44 am