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Netflix and the smash hit tax dodge

If there’s a scourge of our times it is the industrial-scale use of tax havens by multinationals and the wealthy to ensure they pay little or no tax, this being a prime contributor to growing global economic inequality.

So pronounced is inequality now that the annual World Economic Forum in Davos began this week with an announcement by Oxfam that just 2 153 people — many of them no doubt attending the jamboree — are wealthier than 4.6-billion of the global poor.

It is good then that the way in which the superrich use havens to hide their wealth and not pay their share of taxes, particularly in the developing world where the money could be put to good use, has been exposed in the form of a popular Netflix movie, The Laundromat.

The movie, with an all-star cast including Meryl Streep, is based on the Panama Papers, a data leak in April 2016 of about 11.5-million documents from more than 200 000 offshore entities, which exposed the offshore law firm, Mossack Fonseca.

Streep plays a fictional character, a woman widowed in a boating accident, who finds the operator was not insured because the insurance was done through a tax haven. She sets out to investigate the front companies operating in these jurisdictions. Her persona is fictional, but the boating insurance and the other stories woven into the narrative are actual cases from the Panama Papers.

Asked by GQ magazine in September last year what the goal in making The Laundromat was, director Steven Soderbergh replied: “Meryl [Streep] and I were talking about this. Meryl’s like, ‘What do we want people to do? What [happens] after they see the movie?’ And I go, ‘Well, look, I think the first step is awareness’. It’s making people realise how prevalent it is, and what the effects of it are on society. When you take hundreds of billions of dollars in taxes out of an economic ecosystem, there’s a huge impact on the infrastructure of the country. That has an effect on schools, roads, hospitals, all the civil services that we take for granted. It’s a huge amount of money to just take off the table,” Soderbergh said.

“That’s a global issue but particularly feels like something we see in the United States a lot, these big corporations avoiding tax at any cost.”

But if Netflix’s The Laundromat was intent on exposing malpractice in international financial flows, the internet entertainment service is equally guilty of such practice, according to Tax Watch, a nonprofit based in the United Kingdom. It reported earlier this month that “Facebook, Amazon and Google have all received a significant amount of scrutiny in recent years about their tax affairs, but the last of the FANG group of companies, Netflix, has not.

“One reason for this could be that Netflix has historically not been as profitable as other digital companies, as it has spent large amounts of money building an international presence and buying film rights.

(John McCann/M&G)

“However, recent years have seen the company’s profits rocket, from $123m in 2015, to $1.2bn in 2018,” Tax Watch said. Its analysis of Netflix’s 2018 financials showed that of its $1.2-billion in global profit, up to $430-million moved into tax havens. Netflix has not yet reported its 2019 financials.

Tax Watch says in its report that Netflix’s corporate structure shows that the company has implemented a similar tax avoidance structure to many other multinational companies operating in the digital space. “Revenues are not collected in the country where they are made. Instead, customers are charged from an offshore company. Profits appear to then be moved from the hub company to a tax haven through the use of intra-company transactions.

“Netflix’s historically lower profit margins mean that the scale of any tax avoidance will be much lower than other well known companies that employ similar tactics.”

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Kevin Davie

Kevin Davie is M&G's business editor. A journalist for more than 30 years, he has worked in senior positions at most major titles in the country. Davie is a Nieman Fellow (1995-1996) and cyberspace innovator, having co-founded SA's first online-only news portal, Woza, and the first online stockbroking operation. He is a lecturer at Wits Journalism. In his spare time he can be found riding a bicycle, usually somewhere remote.

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