Magazine Issue: October 26, 1998

The Rules According to Rupert

News Corp.'s Australian Accounting Advantage

Marc Gunther

News Corp. boasts that it is the most global media company, with cable and satellite channels on five continents that reach nearly 75% of the world's populace. That's true, but News Corp. is global in other ways too--locating business units in Caribbean tax havens and accounting for its operations under lax Australian rules that confuse even savvy analysts.

Take the simple matter of profits. How much did News Corp. make last year? Well, that depends. The company, based in Australia, reported net income of $1.1 billion in fiscal 1998. But if it had had to comply with U.S. accounting rules, it would have earned just $376 million. In 1997, News Corp. reported profits of $561 million that would have been a $155 million loss under U.S. Generally Accepted Accounting Principles. Don't ask why--it takes the company three single-spaced pages to explain--but, among other things, Australian rules allow intangible assets to be revalued upward periodically.

So for accounting purposes, News Corp. comes from Down Under. But for regulatory purposes, Fox calls itself a U.S. company because federal law bars foreign entities from owning TV stations. Murdoch was permitted to buy the Fox stations only after he became a U.S. citizen in 1985; his lawyers assured the FCC that he would control Fox. NBC later accused Fox of violating the foreign-ownership rules but dropped its challenge to pursue a business deal with Murdoch to get CNBC carried in Asia.

When it comes to taxes, News Corp. sings with a Caribbean lilt. Its annual report lists nearly 800 business units incorporated in 52 countries, including about 60 in Bermuda, the British Virgin Islands, the Caymans, and the Netherlands Antilles, all island nations with low or no corporate taxes. Star TV, the Asia satellite service, is incorporated in the Virgin Islands, while some movie profits made by Twentieth Century Fox flow into a unit in the Caymans, according to an investigation by Paul Farhi of the Washington Post.

The payoff? News Corp.'s tax rate has averaged 5.7% in the 1990s, while Walt Disney's, Time Warner's, and Viacom's have averaged between 27% and 32%.