Grand Theft Loophole: Global entertainment giants avoid millions in UK corporation tax

October 29, 2019

2 min read

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What's going on here?

A UK tax-relief policy, “Video Games Tax Relief” (VGTR) has been used by the world’s largest video game giants, including WarnerMedia, Sony and Sega, to avoid paying tens of millions of pounds in UK corporation tax.

What does this mean?

The VGTR policy, introduced in 2014, allows game publishers to claim back up to 20% of some production costs. The tax-relief scheme was approved by the European Commission under the presumption that it would benefit “a small number of distinctive, culturally British games which have increasing difficulties to find private financing”.

To qualify for the scheme, games under development are required to pass a “cultural test” governed by the British Film Institute. Games can score points on whether they include British or European cultural references. However, the test has been criticised for being too lenient, as simply having staff or offices in the UK or European Economic Area, or using the English language allows the game to score points as well.

Despite being intended to assist small independent British game developers, close to half of all the relief has gone to 4 large foreign-based companies and many games that have qualified have had few, if any, British cultural references. 

Warner Media, which owns a number of British game development companies including Traveller’s Tales, has claimed up to £60 million in corporation tax relief. Similarly, Sony has claimed almost £30 million, while Sega claimed up to £20 million.

What's the big picture effect?

This investigation into the VGTR scheme comes after TaxWatch UK, an investigative think-tank on tax, found that the creators of Grand Theft Auto V paid no UK corporation tax between 2009 and 2018. The New-York headquartered parent company claimed £42 million in VGTR through its UK developer, Rockstar North.

Alex Dunnagan, a researcher at TaxWatch UK said the findings on Warner Media, Sony and Sega show the scheme has “become a cash cow for large, tax-dodging multinational corporations who are milking the system to extract hundreds of millions of pounds in subsidies from the British taxpayer”.

An employee at a British game development company owned by WarnerMedia noted that “whilst these large companies are within their legal rights to apply and benefit from the tax relief scheme, it’s frankly disgraceful. To take such a huge portion of the allotted grant, a grant designed to help promote indie game development within the UK is horrendous. Giant foreign companies are taking money away from creatives in the UK that actually need it for support”.

One independent game developer said that the tax-relief scheme was “crucial to keeping the lights on”.

The positive intended impact of corporate tax benefits is highly debatable, with studies showing that relief does little to create jobs or boost the economy. Meanwhile, the total cost of the scheme to the taxpayer has reached more than £100m a year, almost three times higher than originally estimated by the government. It is clear that a scheme originally intended to boost the British game development industry is being drained by foreign corporations and, potentially, a stricter qualifying test should be introduced. 

Report written by Erin Stockdale

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