How world's leading media companies site subsidiaries in low-tax nations

Investigation: How world's leading media companies site subsidiaries in low-tax nations

media companies subsidiaries tax

Tech giants and Chinese companies are among the media industry players more likely to pick low-tax destinations to establish subsidiaries, analysis by Press Gazette has found.

We analysed 27 firms in the media and social media industry, using the Monitor Network’s multinational companies database. The database contains information on subsidiaries held by 2,190 of the world’s biggest companies by market capitalisation. Our analysis looked at the location of their subsidiaries, and in particular how many were in countries with corporate tax rates of 15% or less.

Included in the study were some of the world’s leading news organisations such as News Corp, tech giants such as Google and Facebook, and broader telecommunications companies that derive a significant part of their revenue from media activities. We also included Tencent which, while having a broader industry footprint, dominates China’s social media market.

The data – which covers 3,253 subsidiaries included in parent company filings – shows that 6% of the subsidiaries of the 27 media companies were located in no or low-tax countries. That is slightly higher than the cross-industry figure identified by our sister publication Investment Monitor.

Of the 73 subsidiaries owned by Facebook, Google and Twitter listed in the database, 16% were in low-tax countries. Of the three giants, Facebook had the most subsidiaries (43) – seven of which were in places known for low corporation tax rates.

The total tally of subsidiaries subject to low-tax regimes is likely to be higher than the analysis suggests. The database records subsidiary locations on a national level but in some places such as Delaware (where Alphabet’s US subsidiaries are based), corporate tax rates are notably low. If variations in tax regimes within countries were considered this would mean that all of Alphabet’s subsidiaries were in places favourable for tax.

While media companies do not choose only low tax destinations for their subsidiaries, opening offshore companies in places that can help minimise their tax bill is a significant theme, says Nick Mathiason, founder and co-director of investigative journalism organisation Finance Uncovered.

“Most companies want to minimise the amount of tax that they pay, but for multinationals it’s much easier than for average companies,” he says. “Multinationals can shift profits and load up costs on the consumer-facing profitable entities where they make their money. This has been a problem that has gathered pace over the past 30 to 40 years.

“[These companies] often end up paying very little tax in very profitable locations and if it’s a US technology company that money tends to get shipped back to the United States via tax havens,” he adds.

Although moving around profits to avoid taxes is a systemic global issue,  the huge profitability of companies such as Facebook, Google and Apple has shifted a lot of the focus on them, says Mathiason. In 2019, Facebook paid just £28.6m in UK taxes, despite recording £2.2bn in gross revenue from advertisers.

“They are cash-generative, money-making machines that have hoovered up advertising and are doing it at scale on a global level,” he says. “The tech companies are really in the eye of the storm.”

Amid a tax dispute with the IRS, Facebook recently announced the closing of several of its Irish subsidiaries – holding companies which it had been using to channel billions of profits to avoid paying taxes in other locations.

More broadly, the data also showed that the US remains the number one country for producing and attracting media industry subsidiaries.

This echoed findings from our sister publication Investment Monitor, which analysed the preferred subsidiary location for all 2,190 companies in the database across all economic sectors. This situation reflects the US’s continued dominance of the multinational media market as well as its leading position in destinations for overall greenfield foreign direct investment (FDI).

Of the 27 companies we analysed, 13 were headquartered in the USA.

The USA was the preferred location for the highest number out of the 3,253 subsidiaries (787, or 24% of the total). It was closely followed by the UK, which accounted for 703 (22%) of subsidiaries.

News Corp is the company that has set up the most subsidiaries (468), most of which are located in Australia (175) and the UK (115). Second for the number of subsidiaries is ITV which has 393 spin-off companies, most of them (258) located in the UK.

Although tech conglomerate Tencent which owns China’s biggest social network WeChat and streaming service iQIYI were the only two Chinese companies analysed in our dataset, 40% of iQIYI’s subsidiaries and 16% of Tencent’s were located in low-tax countries, among them Hong Kong, the Cayman Islands and the British Virgin Islands.

The tide however could be turning on companies that seek to offshore profits to cut down on their tax bill. The OECD and G20 have proposed 15 measures that if implemented would mean companies would have to pay tax where they make their profit.

And when it comes to the media industry, although the tech giants are not the only ones who have been saving on their tax bills, they stand to lose the most through tougher regulations, says Mathiason.

“The tech industry, more than the media industry, has a reputational issue when it comes to tax avoidance,” he says. “People are frustrated with Facebook in a way that they are maybe not with smaller media companies.

“Smaller media companies aren’t so at risk in terms of reputation. At present it is the tech giants who are dominating the market and are squeezing the media sector, which has more to lose from international efforts to reform the tax system,” he adds.

Facebook, Apple and Google were also contacted by Press Gazette for this piece but did not provide a comment.

Image by Reuters