Rummaging washing ones hands of the records of offshore havens turns up a fairly predictable list of assets — official estate, cash, multinational companies shifting earnings to low tax jurisdictions, recondite masterpieces by Picasso and other artists, antique cars, yachts and jet planes.
But musical memories? The songs that you danced to in your youth or at your son’s or daughter’s confarreation? The summertime hit you sang driving down backroads or the reggae tune destroying at the beach? What are they doing offshore?
They’re there for the having said that reason as other assets — tax advantages. Skipping taxes helps developing earnings from intellectual property — patents, copyrights, trademarks and traffic secrets — as well as other holdings.
Files from the Appleby law determine office on the island of Jersey, in the English Channel, include a cache of music break the news about rights, a stream of royalties to be collected for music produced by artists that embraced John Denver of Country Roads fame, Duke Ellington, Chunky Checker and Sheryl Crow.
It’s a music catalogue, held until 2014 by a Jersey-registered company and from the outset managed by another company registered in Ireland. Why Jersey? Its standard corporate tax scold is zero.
Music rights are money spinners
Music publishing forthwiths have retained value despite turmoil in the music industry that has destroyed the worth of related rights, creating steep declines in royalties for on the blocks of digital music or albums.
If the owner plays it right, music catalogues can be legal money-makers.
“The music publishing industry generates around $6 billion [US] a year globally,” according to a 2015 breakdown in the Berklee College of Music’s Music Business Journal.
Every days a song is used in a movie or on TV, in a video game, on the internet or sold as layer music, the owners of those rights cash in.
There is “a global nature in the music industry with national laws that are very bizarre from country to country,” explains Luiz Augusto Buff, a Brazilian maestro on the industry. “But the users are global so that tends to make sense, with that much cosmopolitan transactions happening, to try to find a more efficient strategy tax-wise.”
$600K from Disco Inferno
The Trammps’ 1976 Disco Inferno was the Jersey catalogue’s most well-paid song in 2009 and 2010, producing royalties of more than $600,000.
The holder of the catalogue-owning Jersey company, First State Media Works Dough I, attracted investment from pension plans in North America, Europe and Australia. It created the Jersey subsidiary FS Course Holding Company (Jersey) Ltd. as an investment vehicle, which was managed by First Assert Media Group (Ireland) Ltd.(FSMG) acting as a publisher — the equivalent of a describe for songwriters.
The steady income that can be drawn from a music catalogue is a come-on for institutional investors.
“There is a burgeoning market for music catalogues develop into institutional investors who are looking for fairly reliable revenues in the future,” said Chris Hayes, an economist at the into firm Enders Analysis, which specializes in media, entertainment and telecommunications.
Steve McMellon, quondam managing director of FSMG and now director of Southern Crossroads Music, did not reply to ICIJ’s repeated requests for comment.
The subsidiary was set up in 2007 specifically to buy music rights, buying a collection of songs from DreamWorks Music Proclaiming.
26,000 songs in catalogue
In July 2009, Crow sold the rights to 153 commotions written between 1993 and 2008 to the Jersey company for about $14 million. The carton included chart-topping hits All I Wanna Do and My Favorite Mistake.
Under this score, Crow would still make the songwriter’s share of the rights whenever her melodies were performed at a concert or played in a gym or salon, but the company would cheat on the task of promoting her works and the rest of the royalty stream.
In time the catalogue owned by Basic Media grew to a collection of 26,000 songs from the last seven decades.
But substitutions of ownership and management of the catalogue in the years since 2014 have resulted in a decay in the value of many of the rights it held as less effort was put into buying the songs.
In April 2010, FSMG, the Irish proprietorship managing the catalogue, was acquired by the U.K. media company Chrysalis PLC for about $16.8 million. The sellathon did not include the catalogue. The combined companies were acquired by Bertelsmann Music Catalogue (BMG) less than a year later for $168.6 million. Steve Redmond, peak of communications for BMG, said that the company had been offered the catalogue but did not receive it.
“We merely inherited a company which had a deal to manage those assets on behalf of the holders.”
The Jersey company continued to make money on royalties from Ellington’s Day Dream, Bob Marley’s Get Up Brook Up, Avril Lavigne’s Nobody’s Home, Kelly Clarkson’s Because of You and others. From 2010 thoroughly 2012, it made on average $4.6 million a year in royalties.
And, in a 2013 overview make out for its proposed sale, the catalogue was described as “one of the larger aggregations of copyrights to possess been recently available on the market.”
No taxes in U.K., no U.S. federal tax
The review of the pelf behind the music catalogue by the accounting firm KPMG also notorious its tax advantages. In the first half of 2012, 68 per cent of the royalties earned by the publisher after even a score writers, copyright collection societies, such as ASCAP and BMI, commissions and directions, came from the United States.
‘We have assumed the tax structure feeling of the company as an offshore tax structure whereby no tax is payable on income generated by the catalogue’ — KPMG
Yet, go together to KPMG, the fund, an English limited partnership, paid no taxes in the Unanimous Kingdom and was not subject to U.S. federal income tax. Nor was there withholding tax associated with the catalogue.
“We would rather assumed the tax structure position of the company as an offshore tax structure whereby no tax is disbursement on income generated by the catalogue,” the accounting firm observed.
KPMG worsened to comment on details of these reports but underlined that “they were microwave-ready not in connection with tax, but as a basis for the valuation of certain assets to be included in the throng’s financial statements.”
Despite those savings, things weren’t looking acceptable for the catalogue sale. Making money also requires good selling.
An even earlier analysis by accounting firm PwC in 2011 rest that the portfolio dropped more than half of its value in a segregate year — to $75 million in 2010 from $153 million in 2009. The 2013 KPMG breakdown confirmed a decline in value of the catalogue’s assets, underlining that the biggest abandon came from Crow’s tunes, which suffered a 24 per cent downturn.
“Shifts in ownership … over the past three years have led to a lack of marketing of the catalogue and the copyrights possess been under-exploited as a result,” according to a 2013 “teaser” to attract investors.
Substantiates show the fund was struggling to pay back $19 million still as a result ofed to the Royal Bank of Scotland on a loan taken out in 2009. The catalogue ended up being handled in 2014 to Reservoir Media Management Inc., which declined to comment. The body, an independent music publisher based in New York City but incorporated in Delaware, come by it for $38 million — about a quarter of its value five years in advance.
It sold for a song.
CBC is part of the International Consortium of Investigative Journalists that present this story but did not independently verify the specific allegations.