A paragraph removed from a fiercely contested Fairfax story accusing News Corp of minimising its tax through a holding company led News Corp to briefly claim victory yesterday. But by afternoon, the paragraph had been reinstated, and the controversy rages on.

On Monday, Fairfax’s papers splashed with a story by senior business journo Michael West explaining how News Corp used a complex tax structure involving a holding company to move money to America relatively tax-free.

The article has brought howls of protest from News Corp, which railed against both the story and West directly in Senate hearings on Wednesday.

Yesterday, News Corp discovered that a paragraph it viewed as key to the story had been removed from the online version of West’s piece. That paragraph read:

“Had these recent distributions been classed as dividends, News could have contributed a further $1 billion in tax to the Australian public purse. Dividends incur withholding tax at a rate of 30 per cent.”

News Corp  claimed the removal of a paragraph undermined the entirety of the story. But the forensic tax expert Fairfax relied on to help investigate News Corp’s accounts dismissed this, saying the story was never about withholding tax avoided in Australia, but rather about how News Corp used a complex structure to avoid taxes. The removal of the paragraph, University of New South Wales accounting academic Jeffrey Knapp told Crikey yesterday, was immaterial.

Knapp has often collaborated with Michael West on investigations into the tax minimisation strategies of large businesses. He helped research an investigation with West into irregularities in News Corp’s 2004 accounts that led to a story alleging News Corp had created a dummy holding company to acquire its Australian operations, resulting in its being able to move income from its Australian to American arms while paying very little tax in either country. The investigation into 10 years of News Corp’s accounts concluded News Corp Australia had paid taxes totalling just 10% of its operating profits.

According to West’s piece, News Corp did not cooperate with the investigation, responding to detailed questions with a statement saying the company had fulfilled its legal obligations. But at a Senate estimates hearing on Wednesday, News Corp Australia chief Julian Clarke tabled five years’ worth of accounts, showing the company paid $417.3 million in income and interest withholding taxes on $815.9 million in accounting profit. He also strongly criticised West personally, saying West didn’t know the difference between accounting and tax benefits. It’s a familiar situation for West, who has been subjected to fierce criticism in the News Corp press for his earlier stories on the media giant. In February, he was strongly criticised in a series of stories after writing a piece saying News Corp had lent Foxtel money at a 12% interest rate and then lent that money back to itself at 0%, in order to limit tax obligations.

News Corp was seeking a correction from The Sydney Morning Herald, Clarke told the Senate.

On the removal of the paragraph on withholding tax, News Corp media reporter Darren Davidson wrote yesterday, “retracts the entire premise of the story, which alleged that if the money had been remitted in the form of a dividend payment, rather than as a return on capital, News could have contributed a further $1 billion in tax to the Australian public purse.”

But by afternoon, the paragraph had been reinstated, perhaps helped along by News Corp’s story on the matter.

Crikey understands the paragraph was removed from Fairfax’s story after questions were asked about it during the editing process on Monday. It’s understood there were two other shareholders in the holding company, and depending where they are based in the world, that could affect the level of withholding tax News Corp would have hypothetically paid. It was a public holiday and West’s editors were not consulted in the decision to remove the paragraph. They are currently considering whether to issue an apology as requested by News Corp. Davidson’s story accused Fairfax of correcting the record without telling its readers. But West is standing firm behind his story, and by yesterday afternoon, the paragraph had been reinstated. West is still seeking an interview with News Corp to discuss his investigation.

Crikey understands the paragraph’s removal was not requested by News Corp — which is still seeking a correction, strongly disputes the paragraph in question, and holds it absolutely integral to the story. The paragraph included the line: “had these recent distributions been classed as dividends, News could have contributed a further $1 billion in tax to the Australian public purse”. At Wednesday’s Senate hearing, News Corp CFO Susan Panuccio said under the Australian-US tax agreement and applicable Australian tax law dividend ­payments do not attract a withholding tax of 30%, but rather attract no tax at all. As such, she said, News Corp’s repatriation had no tax consequences.

When Crikey spoke to Knapp before the paragraph was reinstated, he said its removal did little to undermine the story. “The story was about corporate tax, not withholding tax … and the tax being avoided wasn’t necessarily Australian,” he said.

There are several ways the money could have been moved to America, Knapp says. Different tax consequences would normally arise depending on whether a distribution is classified as dividends or a return of capital. The dollar figure on the amount of tax avoided, he says, was hypothetical (Fairfax’s story used the word “could”, not “would”). The complexity of the tax system means it’s guess-work.

News Corp has form on tax avoidance, he added. “They weren’t before the Senate Inquiry on Wednesday because their company name was pulled out of a hat.”

“Previously the Australian group was claiming deductions for foreign currency losses where the counter-party was a related company in Bermuda. The ATO may have lost the court case but I feel sure they would classify the paper shuffling for the foreign currency losses as tax avoidance. So News Australia should simply accept that they are fair game for media scrutiny and media criticism about another arrangement that smacks of tax avoidance.”

Knapp says he’s asked News Corp to explain its accounts. “They have been invited to sit down with me and we will agree how much income tax they’ve paid over 10 years, net of any refunds,” he said. “Let’s agree how much it is. But they’re refusing the invitation. They don’t want disclosure.”

“It’s not an easy job when you’re at an information disadvantage like Michael [West] is, and like I am, and you want to challenge a large corporate on anything … You do the best you can with the information that’s out there in the public. And they’re not doing all the disclosures they should be doing.”