I found another little nugget here that took place right around the same time as the backdating of the stock options and thought was fairly interesting. From January 1, 2002 through December 31, 2006 Getty was found not to have paid the proper amount of business and operating taxes, this resulted from a 2001 foreign audit in which the Getty affiliates were required to enter into a formal written agreement for administrative and management services with its parent company Getty Images. Without this agreement Getty could not deduct the cost of administrative services that Getty images provided the foreign affiliates, so Getty formed a limited liability corporation under the laws of California called Getty Management. Under the written agreement created called the General and Administrative Services Agreement (GASA) Getty images agreed to pay itself $1 million a year for handling the administrative issues and only pay taxes on the $1 million a year, yet an auditor found that Getty management incurred costs ranging between $25 million and $98 million per year for total of approximately $307 million during the audit period. The auditor concluded that Getty owed back taxes on the difference of the money and must start paying on the total amount here forward rather than the $1 million written into the agreement.
Getty immediately paid the back taxes but sued the city of Seattle saying that they did not owe the money. During the case in the Court of Appeals for the state of Washington Division I the chief financial officer of Getty Jeffrey Dunn testified, when asked what the primary reason was that this was set up this way he replied and I quote
I think, again, the primary reason was to -- to affect the management charges to the foreign affiliates, with a secondary reason being to avoid an increase in tax in the state of Washington.
Q. Getty of Seattle could not continue to perform its management services under its contract with Getty management unless it received these payments to the cash management system to pay its expenses?
Dunn: that's correct
Dunn also testified later in a pertinent part:
so it was critical to -- critical for us to implement the process of -- of charging these management fees and getting the deductions in the foreign countries. In doing so, we would have increased our exposure to B&O tax both in the state of Washington in the city of Seattle, and so the management company structure was -- was used to shield that increase in tax.
Getty cited several different cases as precedents which they believed prove that they did not owe the tax and the court ruled that none of them applied and they did owe the tax. Getty also appealed the court's decision to the Washington state Supreme Court who refuse to hear the case.
As I said all this took place about the same time as the stock option backdating and in my opinion just as another example of how Getty images chooses not to play by the rules and operate in an unethical manner weather it is with innocent infringers they send their demand letters to, their own contributors, their stockholders and even the local and state governments. There is a lot of information contained in this case and to truly grasp it you'll need to read the documents which I am providing below:
http://www.scribd.com/doc/111396110/Getty-v-City-of-Seattlehttp://www.scribd.com/doc/111396108/Getty-v-City-of-Seattle-RulingRequest for review by Washington Supreme Court Denied Entry #8
http://www.courts.wa.gov/appellate_trial_courts/supreme/?fa=atc_supreme.display&year=2012&petition=pr120207#A1