‘SpongeBob’ and ‘Transformers’ Cost U.S. Taxpayers $4 Billion, Study Says

Unlike businesses that produce physical goods, media companies can take advantage of the intangible nature of their products. Moving licensing rights to SpongeBob from one country to another is just a matter of paperwork.

Jeffery Kadet, an expert on international taxation and an instructor at the University of Washington School of Law, said the moves are akin to self-dealing.

“If you take money or other property like licensing rights and move them from one subsidiary to another subsidiary, have you done anything that changes the group as a whole economically? The answer is that you haven’t,” he said. “It’s like taking a dollar bill from your front left pocket and moving it to your right rear pocket. You still have the dollar.”

ViacomCBS’s tax arrangements, which appear to be legal, take advantage of disparate tax codes across nations, the study said. Income that may be considered taxable in the United States may be deemed free from such levies in the Netherlands, for instance.

Since 2002, tax experts working for Viacom, CBS and ViacomCBS have devised structures to take advantage of these mismatches, thus lowering taxable income, according to the study. Almost all of these plans involved one country: the Netherlands.

Dutch tax authorities, in an effort to compete with other European nations, have offered favorable rulings to multinational corporations, allowing some companies to pay taxes on just 0.8 percent of revenue from licensing international distribution rights. In other words, for every dollar Viacom collected overseas for a blockbuster like “Transformers” (after converting from reals, lira or renminbi), less than a penny was likely subject to corporate income tax, according to the study.

Dutch authorities have created what tax experts call a “conduit” system where most if not all of a U.S. company’s international income is funneled through a region with friendly tax codes. Alphabet, Starbucks, Dell and other U.S. companies have also had units in the Netherlands.