Murdoch's News Corp made 'profit' of $4.8 billion in income tax refunds from U.S. government over four years



CORRECTION

This story was based on a Reuters piece by David Cay Johnston, which he has since retracted and corrected



His full explanation can be read by clicking here

Rupert Murdoch's News Corp. collected $4.8 billion in income tax refunds in the last four years, an investigation has uncovered.

The payback means Murdoch's U.S.-based media empire has actually made money on tax rebates on top of its $10.4 billion in profits.

At the standard 35 per cent corporate tax rate the company should have coughed up $3.6 billion in tax.



Cashing in: News Corp has raked in $4.8 billion in tax refunds over the last four years

The relevant figure is the cash paid tax rate. This is the net amount of corporate income taxes actually paid after refunds.

For the last 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 per cent statutory rate.

The investigation found three basic tax minimising strategies employed by News Corp.

One is the aggressive use of intra-company transactions.

The company globally allocates costs to locations that impose taxes - and profits to areas where profits can be earned tax-free.

Trouble: News Corp has been the headlines recently for phone hacking at its now closed British newspaper The news of The World

Using 152 subsidiaries in tax havens, including 62 in the British Virgin Islands and 33 in the Caymans, News corp is able to avoid paying certain taxes in the U.S.

News Corp. 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.

The company 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.

The second method is to buy companies with tax losses.

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.



Creative: The tax practices employed by News Corp are also used by other high profile U.S. companies

Lastly Mr Murdoch's tax lawyers are expert at maximising 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.

