Let’s say you own a Circus and 90% of your revenue is generated internationally but you pay $25 in taxes out of every $100 you earn in royalties from the use of your trademark.
Let’s say that you could legally ‘ship’ your trademark offshore to a country where the tax on royalties is 5.72% saving your company $19.28.
Would you do it?
A classic no-brainer right?
According to Radio Canada, the world-famous Montreal-head-quartered Cirque du Soleil has done just that and has transferred its trademark to a subsidiary in Luxembourg called Cirque du Soleil i.i.i Sa.
As you might expect Cirque owner Guy Laliberté isn’t the only one shifting his trademark earnings offshore. Starbucks UK and Facebook UK have also found themselves in the cross-hairs of the ‘tax avoidance lobbyists’ who point to the associated transfer pricing shenanigans of these multi-billion dollar brands as reason enough for their vilification by us — the morally upright, over-taxed majority.
Although so far no Panorama-styled expose has been done on the particular circumstances of Cirque and its Luxembourg subsidiary, according to TaxJusticeNetwork here’s how Cirque has joined ‘big brands’ in making a ‘circus’ of international tax rules:
“the move to Luxembourg will facilitate the assignment by the company of an artificially high value to the Luxembourg subsidiary, which would then charge the other parts of the company very high royalties for the use of its trademark.
This way, the Luxembourg-based subsidiary makes huge profits (which are taxed at exceedingly low rates) and in the ‘real’ countries where Cirque du Soleil actually places its prancing acrobats, those royalties are deducted against local profits, for tax purposes.” http://taxjustice.blogspot.co.uk/
Compelling stuff right?
The interesting conclusion is then made that by cutting its tax bill without making anything more efficient, this re-ordering of its operations using a close to tax neutral country deprives Canadian taxpayers of wealth; while fattening coffers of Cirque’ s Canadian owner.
It is true though that Canada has a tax treaty with Luxembourg and presumably it is one that reflects the international standard of exchange of tax information ‘on request’ so that both tax collection agencies can satisfy themselves of the tax compliance of Cirque’s tax activities under the laws of both states.
But of course by now you know that for some the issue is not ‘legality’ but ‘morality’ and as such the question is not whether Cirque’s reorganisation has preserved this most recognisable of Canadian business brands and allowed Cirque to maintain its standing as the “Greatest Show on Earth” in spite of the global recession; but rather whether Laliberté and his estimated net worth of $2.5B is nothing more than a common-breed tax dodger.