Tax & takedown: Could a row over tax relief be enough to derail gaming’s most profitable gangsters?

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

For centuries, in real life and in some of entertainment’s most memorable fiction, law enforcement agencies have faced the same predicament; namely, how to bring organised criminals to book.

Whilst informers, intelligence and all-out armed confrontation have all produced some degree of success, it shouldn’t be forgotten that tax has played a part in halting the money-spinning sprees of some of the underworld’s infamous figures.

Perhaps most notably, the Chicago mobster Al Capone was finally apprehended not for his alleged involvement in a string of murders but for income tax evasion, an offence for which he was sentenced to 11 years in jail in October 1931.

The best part of a century later, the brains behind some decidedly more digital but no less influential hoodlums may see their position in question because of a dispute about tax.

Edinburgh-based Rockstar North is one of the very biggest names in computer games. In particular, its Grand Theft Auto series has proven to be the most lucrative creation in entertainment history.

According to one report in November last year, ‘Grand Theft Auto V’ (or ‘GTA V’, as it’s commonly known) alone had “made than any other single media title in history”, selling more than 90 million copies worldwide since its release in 2013 and generating an astonishing £4.9 billion.

Success for a game which allows players to control criminals as they go on a bloody rampage has, naturally, not come without its controversies.

Its makers have faced a blizzard of lawsuits, accused of misogynism, appropriating the likeness of a Hollywood star, using rap music without permission and – arguably more intriguingly – agitating the daughter of a genuine US mafioso whose nickname was ‘The Bull’.

Nevertheless, as with Al Capone, Rockstar North has become embroiled in a row about tax – in particular, its perfectly legal use of tax reliefs introduced by the former Chancellor of the Exchequer George Osborne in 2014.

The company’s accounts reveal that it has turned over more than £189 million in total over the last three years but paid no Corporation Tax.

Furthermore, the same period saw Rockstar North claim just over £42 million in Video Games Tax Relief (VGTR), a subsidy designed to foster further success for Britain’s designers.

During 2017-18, Rockstar North received a £19.1 million share of the £108 million paid out in relation to 345 claims for VGTR made that financial year.

It is one of eight reliefs which have been introduced to support the creative industries – video game design, film, television, theatre, orchestras, museums and galleries – since 2007.

Companies wanting to take advantage need to demonstrate that the game is “British…[and]…intended for supply” with at least one-quarter of the spend involved in development being spent on “goods and services” provided from within the European Economic Area (EEA).

Determining content which is ‘British’ could, of course, a subjective one and involves passing ‘a cultural test’ administered by the British Film Institute (BFI).

In recent days, some people have attempted to argue that ‘Grand Theft Auto V’ – based in a fictional American city and racking up billions for its American parent company – simply isn’t British enough to benefit from VGTR.

One tax campaigner, possibly adopting the language of one of the game’s characters, described how its continual receipt of the relief amounts to “a drive-by assault on the British taxpayer”.

There is, of course, another way of looking at the situation. Yes, the amount of VGTR relief claimed over the course of the last three years has more than doubled but it could be seen as the price of gaining British designers entry to a global market which, according to one estimate, was worth more than £111 billion during 2018.

Leaving aside the specific content or merits of different products since the early days of Atari or even ‘Sonic the Hedgehog’, those figures illustrate how the video game industry is no longer child’s play but enormous business.

That makers now employ an adult approach both to storylines and balance sheets is perhaps not a surprise.

Further details on Creative Industries – including Video Games – Tax Relief can be found here.

If you have any queries about this article or tax in general then please do get in touch.

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