December 10, 2013

The Orlando Sentinel: Disney triples offshore profits, saving on U.S. taxes

media mention

(Original Post)

December 9, 2013|By Jason Garcia, Orlando Sentinel
The Walt Disney Co. has nearly tripled the amount of profit it is keeping in offshore subsidiaries, saving the company $315 million in U.S. income taxes, new regulatory filings show.
The move helped Disney, one of the largest taxpayers in Florida, cut its reported effective tax rate in the U.S. by more than 2 percentage points during its last fiscal year, which ended in September.
The parent company of Walt Disney World said it is keeping more profit abroad primarily because it is investing more money in international businesses. But it has also become a common way for American multinationals to avoid federal taxes in this country.
Untaxed foreign profits are one of the most vexing problems facing U.S. policymakers as they debate corporate-tax reforms. By some estimates, American businesses are now holding $2 trillion in profits offshore.
Disney, based in Burbank, Calif., has now accumulated about $1.5 billion in foreign profits on which it has not paid U.S. tax, according to the filings. That’s up from $566 million a year ago.
Disney’s annual net income reported to shareholders rose 8 percent over the same period, from $5.7 billion a year ago to $6.1 billion.
American companies are supposed to pay U.S. tax on profits they earn in other countries. But they have to do so only once their international subsidiaries return the earnings to this country.
That allows companies to defer their U.S. taxes by declaring that they intend to indefinitely reinvest those profits in their foreign operations.
An Orlando Sentinel review in August found that multinationals headquartered in Florida — including Central Florida-based Tupperware Brands Corp., Harris Corp. and Marriott Vacations Worldwide Corp. — had amassed at least $9.4 billion in foreign profits on which they have not paid U.S. tax. That has now grown to at least $9.7 billion as several companies have completed new fiscal years.
The chairman of the chief tax-writing committee in the U.S. Senate , Montana Democrat Max Baucus, last month unveiled a plan that would impose an immediate 20 percent tax on all foreign profits that have been parked abroad by U.S. companies, a measure that would generate an estimated $200 billion for the U.S. treasury. But some business lobbyists have objected, and its prospects are dim in a gridlocked Congress.
The amount of profit Disney is indefinitely keeping offshore amounts to a small fraction of the totals held by some other large businesses, particularly in the technology and pharmaceutical industries, which can more easily move patents and other valuable intellectual property abroad.
For example, Apple Inc., whose aggressive tax-minimizing strategies have drawn intense scrutiny, has amassed $54.4 billion in foreign profits that have not been taxed in the U.S., according to regulatory filings. The maker of iPhones, iPads and Mac computers estimates that it is avoiding an American tax bill of about $18.4 billion on those earnings.
But Disney’s holdings are growing rapidly. In addition to nearly tripling from last year, the company’s indefinitely reinvested foreign profits have soared nine-fold in the last four years.
In a review of financial statements conducted this spring, Citizens for Tax Justice, a progressive group that lobbies for higher corporate taxes, found 92 companies that increased their offshore profits by at least $500 million over their previous fiscal years. Only one business, oil-field services company Baker Hughes Inc., had more than doubled its total holdings.
Disney said the biggest reason it is keeping more profit abroad is that it is spending more overseas. Among other projects, the company has begun construction of a $4.4 billion Shanghai Disneyland theme park and recently completed an extensive renovation of the Disney Magic cruise ship, which spent nearly six weeks in a Spanish shipyard.
“The amount of foreign earnings that we designated as reinvested offshore has increased due to our continued investment in international markets,” Disney spokesman David Jefferson said.
Disney also said it reclassified some foreign profit earned in prior years as indefinitely reinvested overseas. That reflected investments such as $300 million spent during its fiscal 2012 year to launch a Disney Channel in Russia.
Much of the foreign earnings that American companies have accumulated has genuinely been reinvested, in assets such as buildings and equipment in other countries. But a big chunk is simply sitting in cash — and much of that is actually circulating in the U.S., held in safe investments such as Treasury bonds, money-market funds and bank accounts.
Jennifer Blouin, an accounting professor at the University of Pennsylvania’s Wharton School of Business, has estimated that 43 percent of all reinvested foreign profits amassed by U.S. multinationals is held in cash.
Disney said only a “very minimal percentage” of its foreign earnings are held in cash “for working capital purposes.” The company declined to disclose a precise figure.
Many other companies also refuse to disclose key details about how they are using their foreign profits because neither Congress nor the Securities and Exchange Commission forces them to, said Matthew Gardner, executive director of the Institute on Taxation and Economic Policy, a think tank affiliated with Citizens for Tax Justice. The lack of disclosure makes it harder to independently evaluate companies’ claims, he said.
Disney’s regulatory filings indicate that it has paid an effective tax rate of around 14 percent to other countries on its foreign profits. That is well below the statutory 35 percent tax rate it would face in the U.S. if it brought the earnings back into this country, though Disney would get offsets for the tax it paid to other governments.
Like many other multinationals, Disney has established a host of subsidiaries in low-tax or tax-haven countries. That includes entities known as Wedco Holdings B.V. in the Netherlands and Wedco One S.a.r.l. Participations S.C.A. in Luxembourg, whose names come from the initials of company founder Walter Elias Disney, and Steamboat Ventures Asia L.P. in the Cayman Islands, named after the original Mickey Mouse cartoon.
Disney would not discuss its subsidiaries in detail. It described the entities in the Netherlands and Luxembourg as holding companies for its European operations and said it held a “relatively small” indirect investment in the Cayman Islands entity, which it described as a venture capital firm that works out of Shanghai and invests in the Internet, digital-media and consumer-technology sectors.
[email protected] or 407-420-5414

December 9, 2013|By Jason Garcia, Orlando Sentinel

The Walt Disney Co. has nearly tripled the amount of profit it is keeping in offshore subsidiaries, saving the company $315 million in U.S. income taxes, new regulatory filings show.

The move helped Disney, one of the largest taxpayers in Florida, cut its reported effective tax rate in the U.S. by more than 2 percentage points during its last fiscal year, which ended in September.

The parent company of Walt Disney World said it is keeping more profit abroad primarily because it is investing more money in international businesses. But it has also become a common way for American multinationals to avoid federal taxes in this country.

Untaxed foreign profits are one of the most vexing problems facing U.S. policymakers as they debate corporate-tax reforms. By some estimates, American businesses are now holding $2 trillion in profits offshore.

Disney, based in Burbank, Calif., has now accumulated about $1.5 billion in foreign profits on which it has not paid U.S. tax, according to the filings. That’s up from $566 million a year ago.

Disney’s annual net income reported to shareholders rose 8 percent over the same period, from $5.7 billion a year ago to $6.1 billion.

American companies are supposed to pay U.S. tax on profits they earn in other countries. But they have to do so only once their international subsidiaries return the earnings to this country.

That allows companies to defer their U.S. taxes by declaring that they intend to indefinitely reinvest those profits in their foreign operations.

An Orlando Sentinel review in August found that multinationals headquartered in Florida — including Central Florida-based Tupperware Brands Corp., Harris Corp. and Marriott Vacations Worldwide Corp. — had amassed at least $9.4 billion in foreign profits on which they have not paid U.S. tax. That has now grown to at least $9.7 billion as several companies have completed new fiscal years.

The chairman of the chief tax-writing committee in the U.S. Senate , Montana Democrat Max Baucus, last month unveiled a plan that would impose an immediate 20 percent tax on all foreign profits that have been parked abroad by U.S. companies, a measure that would generate an estimated $200 billion for the U.S. treasury. But some business lobbyists have objected, and its prospects are dim in a gridlocked Congress.

The amount of profit Disney is indefinitely keeping offshore amounts to a small fraction of the totals held by some other large businesses, particularly in the technology and pharmaceutical industries, which can more easily move patents and other valuable intellectual property abroad.

For example, Apple Inc., whose aggressive tax-minimizing strategies have drawn intense scrutiny, has amassed $54.4 billion in foreign profits that have not been taxed in the U.S., according to regulatory filings. The maker of iPhones, iPads and Mac computers estimates that it is avoiding an American tax bill of about $18.4 billion on those earnings.

But Disney’s holdings are growing rapidly. In addition to nearly tripling from last year, the company’s indefinitely reinvested foreign profits have soared nine-fold in the last four years.

In a review of financial statements conducted this spring, Citizens for Tax Justice, a progressive group that lobbies for higher corporate taxes, found 92 companies that increased their offshore profits by at least $500 million over their previous fiscal years. Only one business, oil-field services company Baker Hughes Inc., had more than doubled its total holdings.

Disney said the biggest reason it is keeping more profit abroad is that it is spending more overseas. Among other projects, the company has begun construction of a $4.4 billion Shanghai Disneyland theme park and recently completed an extensive renovation of the Disney Magic cruise ship, which spent nearly six weeks in a Spanish shipyard.

“The amount of foreign earnings that we designated as reinvested offshore has increased due to our continued investment in international markets,” Disney spokesman David Jefferson said.

Disney also said it reclassified some foreign profit earned in prior years as indefinitely reinvested overseas. That reflected investments such as $300 million spent during its fiscal 2012 year to launch a Disney Channel in Russia.

Much of the foreign earnings that American companies have accumulated has genuinely been reinvested, in assets such as buildings and equipment in other countries. But a big chunk is simply sitting in cash — and much of that is actually circulating in the U.S., held in safe investments such as Treasury bonds, money-market funds and bank accounts.

Jennifer Blouin, an accounting professor at the University of Pennsylvania’s Wharton School of Business, has estimated that 43 percent of all reinvested foreign profits amassed by U.S. multinationals is held in cash.

Disney said only a “very minimal percentage” of its foreign earnings are held in cash “for working capital purposes.” The company declined to disclose a precise figure.

Many other companies also refuse to disclose key details about how they are using their foreign profits because neither Congress nor the Securities and Exchange Commission forces them to, said Matthew Gardner, executive director of the Institute on Taxation and Economic Policy, a think tank affiliated with Citizens for Tax Justice. The lack of disclosure makes it harder to independently evaluate companies’ claims, he said.

Disney’s regulatory filings indicate that it has paid an effective tax rate of around 14 percent to other countries on its foreign profits. That is well below the statutory 35 percent tax rate it would face in the U.S. if it brought the earnings back into this country, though Disney would get offsets for the tax it paid to other governments.

Like many other multinationals, Disney has established a host of subsidiaries in low-tax or tax-haven countries. That includes entities known as Wedco Holdings B.V. in the Netherlands and Wedco One S.a.r.l. Participations S.C.A. in Luxembourg, whose names come from the initials of company founder Walter Elias Disney, and Steamboat Ventures Asia L.P. in the Cayman Islands, named after the original Mickey Mouse cartoon.

Disney would not discuss its subsidiaries in detail. It described the entities in the Netherlands and Luxembourg as holding companies for its European operations and said it held a “relatively small” indirect investment in the Cayman Islands entity, which it described as a venture capital firm that works out of Shanghai and invests in the Internet, digital-media and consumer-technology sectors.

[email protected] or 407-420-5414

 


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