The video game industry is known for providing countless hours of fun to millions and millions of gamers. It’s pretty easy for fans to forget the business side that comes along with making these fantastical worlds and competitive experiences. Today, we are reminded just how messy the business side of the gaming industry can be from a sticky situation involving Rockstar Games.
The publisher behind mega-hit titles Grand Theft Auto V and Red Dead Redemption 2 has been accused of dodging corporate tax for the better part of a decade. This news comes out of Tax Watch UK who runs investigative reports on large corporations who found that Rockstar, across all of their branches, paid no income tax between 2009 and 2018. The official statement from Tax Watch UK is as follows:
This report also raises questions as to whether an appropriate amount of profit has been allocated to the UK companies involved in the game’s development. Seven active companies based in the UK using the Take-Two and Rockstar names declared a total profit before tax of £47.3m in the UK between 2013 and 2018. However, over the same period, we estimated the operating profit of games published by Rockstar to be in the region of $5 billion. It is our opinion that a more appropriate allocation of profit between the US and UK would have resulted in substantially more profit being allocated to the UK. This would have meant that Rockstar North would not be eligible for a payable tax credit. Instead, Take-Two and the Rockstar companies should have had a substantial tax liability in the UK.
The avoidance of tax in the UK is only compounded by the fact that Rockstar North took advantage of a tax credit that relieved them of £70m worth of taxes between 2013 and 2018. They were able to gain this credit by stating that GTA is “culturally British” in nature, allowing them to receive payment. Tax Watch UK provided the following conclusion in their report.
We do not believe that this division of profits can be justified under the so-called ‘arm’s length’ standard found in international tax law. There is no evidence that HMRC has challenged this set-up or that Take-Two … has acted illegally. However, it is open for HMRC to challenge the allocation of profit under the transfer pricing system and we urge them to investigate this case urgently.
The HMRC is the governing body that would have control over the fate of Rockstar games here. We will have to wait and see how this situation unfolds going forward.