Disney Uses Complex Tax-Avoidance Scheme, ‘Lux Leaks’ Files Show

Mickey Mouse welcomes guests to celebrate the holiday season during Mickey's Very Merry Christmas Party at Walt Disney World Resort in Lake Buena Vista, Fla.

Documents obtained by ICIJ reveal that The Walt Disney Co. uses companies in Luxembourg as part a complex tax-avoidance scheme. (Photo by Matt Stroshane/Disney.)

By Trevor Aaronson
Florida Center for Investigative Reporting

The Walt Disney Co. generates $18.2 billion per year in economic activity in Florida and and is responsible for more than one in every 50 jobs in the Sunshine State, according to a study the company paid for in 2011.

But here’s something Disney won’t want to brag about: According to documents of secret tax deals in Luxembourg obtained by the International Consortium of Investigative Journalists, Disney uses a complex network of companies and subsidiaries to move profits out of high-tax countries, such as France and Germany, to the tiny nation of Luxembourg, where the multinational resort and entertainment giant only pays an effective tax rate of 0.3 percent.

Alison Fitzgerald and Marina Walker Guevara report as part of ICIJ’s ongoing series on the “Lux Leaks“:

The Disney tax scheme is laid out in a 34-step advance tax agreement proposed in October 2009 by Ernst & Young. The document shows the corporate parent of Mickey Mouse moving money in circles across the globe while transforming it from cash to debt to equity and back.  The copy of the ruling obtained by ICIJ does not bear the stamp of approval of the Luxembourg tax authority. Yet ICIJ was able to verify that the actions outlined in the document took place based on the company’s public filings in Luxembourg.

Disney’s Luxembourg offices are set up in a way that could allow the entertainment giant to move profit away from countries with high corporate taxes like France and Germany.

Disney’s Rube Goldberg-like series of equity transfers gathered ownership of at least 24 of its subsidiaries in France, Italy, Germany, the U.K., Australia, the Cayman Islands and the Netherlands under the umbrellas of two newly created companies in Luxembourg, the new documents show.

At the center of the new structure is a third company, a finance arm initially called Wedco Participations SCA.

The internal bank made loans to many of the subsidiaries at high interest rates, draining profits from those companies that were often in high-tax countries back to Luxembourg in the form of interest payments.  In addition, a Cayman Islands subsidiary, which legally owns at least 16 Disney companies in Europe and Australia, sent its profits to Luxembourg in the form of annual dividends.

Disney’s questionable tax shelter in Luxembourg also allows the company to avoid paying taxes in the United States. According to ICIJ’s reporting, Disney established a U.S. branch of its Luxembourg subsidiary at its headquarters in Burbank, Calif. An expert hired by ICIJ to review the “Lux Leaks” documents said this structure allows Disney to avoid U.S. taxes on some of its U.S. profits, which would normally be taxed at the corporate rate of 35 percent.