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Royalties from thousands of song classics tucked away tax-free

Royalties from thousands of song classics tucked away tax-free
From CBC - November 10, 2017

Rummaging through the records of offshore havens turns up a fairly predictable list of assets real estate, cash, multinational companies shifting earnings to low tax jurisdictions, hidden masterpieces by Picasso and other artists, antique cars, yachts and planes.

But musical memories? The songs that you danced to in your youth or at your son's or daughter's wedding? The summertime hit you sang driving down backroads or the reggae tune blasting at the beach? What are they doing offshore?

They are there for the same reason as other assets tax advantages. Skipping taxes helps increase earnings from intellectual property patents, copyrights, trademarks and trade secrets as well as other holdings.

Files from the Appleby law firm office on the island of Jersey, in the English Channel, include a cache of music publishing rights, a stream of royalties to be collected for music produced by artists that included John Denver of Country Roads fame, Duke Ellington, Chubby Checker and Sheryl Crow.

It's a music catalogue, held until 2014 by a Jersey-registered company and originally managed by another company registered in Ireland. Why Jersey? Its standard corporate tax rate is zero.

Music rights are money spinners

Music publishing rights have retained value despite turmoil in the music industry that has eroded the worth of related rights, creating steep declines in royalties for sales of digital music or albums.

If the owner plays it right, music catalogues can be real money-makers.

"The music publishing industry generates around $6 billion [US]a year globally," according to a 2015 analysis in the Berklee College of Music's Music Business Journal.

Every time a song is used in a movie or on TV, in a video game, on the internet or sold as sheet music, the owners of those rights cash in.

There is "a global structure in the music industry with national laws that are very different from country to country," explains Luiz Augusto Buff, a Brazilian specialist on the industry. "But the users are global so that tends to make sense, with that much international transactions happening, to try to find a more efficient strategy tax-wise."

$600Kfrom Disco Inferno

The Trammps' 1976 Disco Inferno was the Jersey catalogue's most profitable song in 2009 and 2010, producing royalties of more than $600,000.

The owner of the catalogue-owning Jersey company, First State Media Works Fund I, attracted investment from pension plans in North America, Europe and Australia. It created the Jersey subsidiary FS Media Holding Company (Jersey) Ltd.as an investment vehicle, which was managed by First State Media Group (Ireland) Ltd.(FSMG) acting as a publisher the equivalent of a label for songwriters.

The steady income that can be drawn from a music catalogue is a lure for institutional investors.

"There is a burgeoning market for music catalogues among institutional investors who are looking for fairly reliable revenues in the future," said Chris Hayes, an economist at the research firm Enders Analysis, which specializes in media, entertainment and telecommunications.

Steve McMellon, former managing director of FSMG and now director of Southern Crossroads Music, did not respond to ICIJ's repeated requests for comment.

The subsidiary was set up in 2007 specifically to acquire music rights, buying a collection of songs from DreamWorks Music Publishing.

26,000 songs in catalogue

In July 2009, Crow sold the rights to 153 songs written between 1993 and 2008 to the Jersey company for about $14 million. The package included chart-topping hits All I Wanna Do and My Favorite Mistake.

No taxes in U.K., no U.S. federal tax

'We have assumed the tax structure position of the company as an offshore tax structure whereby no tax is payable on income generated by the catalogue' KPMG

Value declines

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