ByteDance Asserts Control of TikTok and Contests $5 Billion Fee


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© Bloomberg. The logo for ByteDance Ltd.’s TikTok app is arranged for a photograph on a smartphone in Sydney, New South Wales, Australia, on Monday, Sept. 14, 2020. Oracle Corp. is the winning bidder for a deal with TikTok’s U.S. operations, people familiar with the talks said, after main rival Microsoft Corp. announced its offer for the video app was rejected. Photographer: Brent Lewin/Bloomberg

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(Bloomberg) — ByteDance Ltd. emphasized it will remain in control of a hived-off TikTok Global business, appearing to contradict President Donald Trump’s statements about how the new entity will be directed by Americans and pay an unusual $5 billion fee to the U.S. government.

The world’s most valuable startup sought to play down speculation it’s giving up control of valuable Chinese technology and assets after striking a deal with Oracle Corp (NYSE:). and Walmart (NYSE:) Inc. to create TikTok Global. ByteDance will retain full control of its prized social media algorithms and allow Oracle only limited access to view source code for “safety” purposes, the company said in a statement posted to its domestic news service Toutiao Monday.

Walmart Chief Executive Officer Doug McMillon will join TikTok’s board. But ByteDance founder Zhang Yiming and the Chinese company’s current directors — which include Sequoia China’s Neil Shen and General Atlantic’s William Ford — will reprise their roles. The statement made no mention of Oracle getting a seat, even though ByteDance said Larry Ellison’s company is slated to own 12.5% after a round of funding before TikTok Global goes public within a year. Walmart and Oracle have said American citizens will take up four of the five board seats for TikTok Global.

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In a blog post entitled “clarifying groundless rumors about TikTok,” ByteDance contested Trump’s assertions his government will get $5 billion as part of the deal. It said that figure was just an estimate of the amount of taxes TikTok Global would pay over several years if the business proved successful.

TikTok has emerged as a top target in Trump’s effort to crack down on China ahead of the November U.S. elections. Tensions between Washington and Beijing are escalating as his administration wages a campaign that’s also ensnared Tencent (HK:) Holdings (OTC:) Ltd., whose WeChat app faces a similar ban.

ByteDance’s statement raises more questions over an arrangement cobbled together over just a few weeks to prevent the banning of the popular social video platform, which the White House accuses of spying on Americans and potentially influencing the elections. The Chinese company is seeking a valuation of $60 billion for TikTok Global, in which ByteDance may end up owning as much as 80% after Oracle and Walmart invest.

Trump has previously said the White House deserves a cut of the deal for making it possible. On Saturday, he said the companies agreed to pay $5 billion to bankroll an education fund that would teach American children “the real history of our country.” TikTok will pay more than $5 billion in “new tax dollars to the U.S. Treasury” and develop an AI-driven online video curriculum, according to a joint announcement from Oracle and Walmart.

But ByteDance said the promised tax payment had nothing to do with the deal.

“As for the so-called $5 billion tax to the U.S. Treasury, that refers to an estimate of the corporate income tax and other taxes TikTok will have to pay in coming years as part of its business development,” ByteDance added. “TikTok is confident in its future but the actual tax amount will have to be determined in accordance with the actual state of the business and American tax structures.”

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While Trump is portraying the agreement as a victory, the business remains under Chinese control. ByteDance said Monday Oracle — which won the right as part of the transaction to review TikTok’s source code for security threats — will only review the software in a controlled environment. ByteDance cited past examples such as Microsoft Corp (NASDAQ:).’s transparency center in China, which lets experts review code in a designated location only.

©2020 Bloomberg L.P.

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