Being McDucked on taxation

Yesterday the AFR had a long breathless story about how Walt Disney is profit shifting out of Australia, leaving us “McDucked”.

So there is a long complicated story about cash-rich Australian subsidiaries being sold for nominal sums and then on-sold and so on and so forth. At the very end of the story we read:

Our global effective tax rate has averaged 34 per cent for the past five years and 35 per cent in the most recent year,” said Zenia Mucha, Disney’s spokeswoman in the US.

“We manage our tax affairs responsibly and aim to fully comply with all applicable tax rules. Your assertions are not based on an accurate understanding of our ­global tax position.

Okay – so let’s consider that statement very carefully. We are invited to believe that Walt Disney has undertaken a complex set of translations, including both Australian and non-Australian operations, to avoid paying a 30% tax rate in Australia and ends up paying 34% on average over the past 5 years.

Seems to me that one of two things is likely to explain that situation:

  1. Walt Disney just aren’t very good at profit shifting and are paying more tax than they otherwise would have, or
  2. There is some other explanation – whatever it was Walt Disney was up to, profit shifting and avoiding Australian company tax rates wasn’t the prime motivation.

What is particularly disappointing is that the AFR doesn’t see any contradiction in a company undertaking massive transactions to “avoid tax” and yet face a higher tax rate on average after that. It simply doesn’t occur to them to question whether the whole premise of the story is consistent with the tax rate actually being paid.

This entry was posted in Taxation. Bookmark the permalink.

16 Responses to Being McDucked on taxation

  1. Baldrick

    Chenoweth was never one to let facts get in the way.

  2. Percy

    Our global effective tax rate has averaged 34 per cent for the past five years and 35 per cent in the most recent year

    Walt Disney just aren’t very good at profit shifting and are paying more tax than they otherwise would have

    All businesses have a moral duty to their shareholders to pay as little tax as possible. Walt Disney should be kicked hard for paying so much.

  3. .

    All businesses have a moral duty to their shareholders to pay as little tax as possible.

    Correct. Citizens have a moral duty to pay as little tax as possible to minimise government incompetence and tyranny.

  4. Entropy

    I was going to point out that the article was by Neil Chenoworth, and thus what would you expect? But I see Baldrick beat me to it.

  5. Andrew

    Is the issue that if they voluntarily paid 30% tax someone else’s tax structure (probably US) would result in double taxation? That would be entirely consistent with:
    – them incurring a relatively high average tax rate (as they would apparently be affected by some double tax), AND
    – being desperately incentivised to lawfully minimise and/or cheat on AUS tax

  6. barry

    Walt Disney in Australia doesn’t own the copyright on any of the Disney material and therefore has to pay the owners a royalty or licence fee to use it to earn their income. To not do so would see them up for a transfer pricing issue.

  7. Pusnip

    That Disney pays a higher average tax rate globally does not necessarily mean that they aren’t avoiding tax here through transfer pricing etc. It may be that their glottal average tax rate would be higher than 34% without those manouvres.

  8. mundi

    It’s because they are double taxed, and what they are doing helps prevent some of the double tax.

  9. DaveR

    So it seems Disney are not doing a particularly good job of reducing their global tax rate. After all, if they based themselves in Luxembourg they could pay globally say 12%. But the issue here is not about their global corporate tax rate, but how much they are paying to Australia (ie nothing).

    And thats why George Osborne’s UK “Google Tax” will catch on here, and shut down the global profit shifting so prevalent among multi-nationals. Current estimates in Australia say such a tax will catch 60 companies.

  10. BorisG

    any reason to take Disney’s statement at face value?

  11. Percy

    any reason to take Disney’s statement at face value?

    Yes, it’s all public information.

  12. Percy

    But the issue here is not about their global corporate tax rate, but how much they are paying to Australia (ie nothing).

    Or approx. $8m as it were. Exactly the amount that they were legally obligated to pay.

  13. Zippy The Younger

    Progressives are blood sucking ghouls

  14. Entropy

    Quite so, Zippy. The only reason lefties care about how much tax Disney or any other company pays isn’t about propriety, but Becuase they want to use the money for whatever boondoggle it is they consider more important than Disney shareholders do. They just think companies are softer touches than tradies.

  15. JohnA

    Pusnip #1536428, posted on December 11, 2014 at 10:39 pm

    That Disney pays a higher average tax rate globally does not necessarily mean that they aren’t avoiding tax here through transfer pricing etc. It may be that their glottal average tax rate would be higher than 34% without those manouvres.

    But that brings us back to the other arm of the proposition: that their “tax manipulation” isn’t effective, that they are incompetent at managing their global tax liabilities. Because Australia’s prima facie rate is lower than their global effective rate, they should migrate profits into Australia. But as others point out, they could migrate to Luxembourg or the Bahamas, too, except that IP revenue ie. royalties don’t migrate readily. There is a significant cost to these tax structures.

    However, the overall proposition is best explained by Entropy above. It’s institutionalised greed on the part of the local carpetbaggers.

  16. Petros

    Can people comment on AFR stories on their website? Seems pretty easy to challenge stuff if you can but if not then they just write crap without fear of being corrected.

Comments are closed.