Multinationals are excellent players of the global financial tax system, using "profit shifting" (through which operating profits are remitted to phony sister companies in tax havens as "licensing fees" or "management fees") to make it look like wildly profitable companies are losing money, making them eligible for tax relief and rebates — thus it is that companies can rake in billions and then receive millions more in corporate welfare.
To see this in action, look no further than Rockstar North, the Scottish branch of Rockstar Games, makers of Grand Theft Auto (owned by Take-Two Entertainment). Between 2013-2019, Rockstar North claimed so little revenue that it owed £0.00 in taxes, and actually managed to claim £42m in tax relief from the British taxpayers.
Take-Two's market cap is £13.1b; over the period in which Rockstar North was pleading poverty (and making an estimated operating profit of £4b), the company dispersed £3.4b in executive bonuses. One of Take-Two's most profitable products is GTA, produced by Rockstar North.
Rockstar North claimed 19% of all available video game tax credits in the UK. The tax credit scheme was created to reward companies whose games make "a significant contribution to British culture" through "British settings, characters and development, and promoting cultural diversity." GTA is set in a fictional California town.
Taxwatch UK's Gaming the System report on Rockstar North's tax evasion notes that the whole scheme is perfectly legal — in other words, the system is working exactly as it was designed to do.
Although the statutory accounts of Rockstar North, the maker of Grand Theft Auto V, state that the company is hardly making any profit, the game is widely reported to be the most profitable media product in history. The game broke several world records for the speed of its sales, and generated $800,000,000 in revenue for Take-Two within the first 24 hours of its release. Within three days the game had hit $1bn in sales, making it the fastest selling entertainment product in history. Within one year, the game had hit $3bn in sales, making it the biggest selling game of all time.6 The game continues to sell, and in May 2019, Take-Two disclosed that they had sold over 110m copies.7Alongside GTA V, the company developed an add-on GTA Online, which created a new virtual world where gamers could interact with other players over the internet. GTA Online generates revenue for Take-Two as players can buy virtual currency to purchase new items in the game.
In 2015, two years after the release of the game, 8 million people were still playing GTA every week, and the add-on had generated an additional $500m for the company.8 The huge sales of GTA V and the popularity of GTA Online has generated an estimated $6bn in sales for Take-Two over the current lifetime of the product.9
These sales have translated into vast profits for the company and its senior management. Between 2009, when development on GTA V is known to have started, and the 2014 financial year in which the game was released, Rockstar North had total costs of £110m. In 2013, the Scotsman reported that the game had a total development and marketing budget of £170m.10 Adding in distribution costs and other ongoing development costs, Take-Two should have generated gross profits in the region of $5bn from the game. This figure is corroborated by data on internal royalties paid by the company.
Grand Theft Auto maker has paid no UK corporation tax in 10 years – report
[Keza MacDonald/The Guardian]
(via /.)
