Murdoch: the actual scandal

By Antonio Arroyo, in Madrid | All around the world, rivers of ink on the Rupert Murdoch affair continue to flow, but what most articles keep on ignoring is what may prove to be the hot potato of Mr Murdoch’s problems as the public opinion is not aware of ​​the corporate network that allows the magnate to circumvent –legally, of course– the tax charge that would be due according to the huge volume of profits generated by the group he manages, News Corp.

The benefits are paid in Switzerland, Gibraltar, Panama and Luxembourg, while obvious losses are charged in the UK. This would be the synthesis of News Corp.’s system, always through legal entities. The parent company is based in Delaware, US, upon which a network of 152 companies –through which the group is managed– sit. As reported in The Economist already in 1999, the company has paid no taxes since 1987 and still won’t pay any because of the losses of The Times and The Sunday Times and thanks to tax breaks it has received. BskyB does pay taxes –£288mn in 2010–, a company that he commands but he has not been able to obtain the majority control of the capital precisely because of the scandal that broke out over the phone-hacking case.

This corporate network –the Murdoch group auditor is Ernst & Young and it only receives £891,000 a year for its work– facilitated, for instance, that the recently closed News of the World earned £89mn in 2010 but had no taxes to pay on it.

Mr Murdoch’s only goal is to sell ​​news, striking news and unique, true or dubious, obtained through bribery or illegal surveillance, whether the victim is deceased, innocent or guilty. Anything goes. In the process, some get hurt: minority shareholders, insurers and policyholders, law firms that now stand accused of negligence, corrupt cops or otherwise are questioned and, of course, directors, executive or not.

Had the illegal surveillance discovered in Britain taken place in America, the Foreign Corrupt Practices Act would have quickly been applied. The US authorities are much faster than the British and have already initiated an investigation to see if practices similar to those discovered in the United Kingdom have also been used in the US.

As our readers know, all that ultimately matters are cash flow numbers: the addition of depreciation and benefits. And that flow is always safe for the Murdoch group, which has made him the 38th richest man in the world, and possibly one of the most influential through his media empire which, of course, do not enlighten the public about the accounting and fiscal practices of News Corp.

The scandal and discredit are egregious, yes, but even today no world leader would refuse to answer the phone tomorrow if Mr Murdoch called, either to provide media support, or to threaten with an anti-campaign.

Antonio Arroyo is a specialist in corporation accountancy. He writes regularly for www.consensodelmercado.com.

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