Another record year for Rockstar Games Tax Relief (RGTR)

9th May 2022 by Alex Dunnagan

Rockstar Games has revealed that they claimed £68.4m in Video Games Tax Relief (VGTR) in 2020-2021, equivalent to 38% of the entire amount of VGTR paid out that year. The amount Rockstar are claiming is rising every year, taking the total the US-owned company has claimed to a staggering £205m.

Video Games Tax Relief was estimated to cost just £35m a year when it was introduced. ^[1]“It is estimated that this generous new corporation tax relief will provide around £35 million of support per year to the sector.”, Video games companies to begin claiming tax relief, HM … Continue reading We now have one company claiming almost double that in a single year.

The 2020-2021 accounts of Rockstar Games UK Limited (previously Rockstar North) were published last week, just three months late, after the 2019-2020 accounts were published over a year late in January.

	2016	2017	2018	2019	2020	2021	Total
Operating Profit	£3,515,268	£3,745,345	£8,242,790	£8,715,917	£9,519,819	£9,399,572	£43,138,711
Tax on profit	£33,416,310	£13,121,157	£26,915,315	£40,035,440	£65,155,510	£64,359,515	£243,003,247
VGTR	£11,278,530	£11,918,339	£19,116,178	£37,607,824	£56,684,144	£68,376,369	£204,981,384
Profit after tax	£36,931,578	£16,884,972	£35,216,097	£48,773,567	£74,783,921	£73,831,443	£286,421,578
Dividends	£0	£12,500,000	£15,000,000	£0	£40,000,000	£0	£67,500,000

While the Edinburgh-based company is responsible for developing some of the most profitable games of all time, its corporate structure ensures that it sees almost none of that profit returned to the UK. ^[2]The corporate structure of Rockstar is explained in our report Gaming The Tax System which we published in April 2019, http://13.40.187.124/reports/gaming-the-tax-system/

Not content with hundreds of millions of pounds in VGTR, Rockstar’s latest accounts reveal the extent of Research and Development Expenditure Credits the company is claiming – £304k in 2020-2021, £1.46m in 2019-2020, and £970k in 2018-2019, for a total of £2.73m over the past the three years. The previous years show how much expenditure they classed as R&D, but no figures are given for the actual amount of relief claimed.

Rockstar’s latest figures provide just another example of how Video Games Tax Relief has gotten out of hand, becoming a large corporates subsidy worth hundreds of millions of pounds a year.

HMRC’s creative industry statistics commentary for the 2020-2021 year states:

In the year ending March 2021, the majority of claims tend to be for smaller amounts, with 47% of all claims being for £50,000 or less; however, these claims are only responsible for 2% of the total amount paid out. Claims over £500,000 account for 87% of the total amount paid out. This proportion has increased from the previous year.

In order to receive VGTR, a game has to be accredited as “Culturally British” by the BFI. Since the introduction of the relief in 2014 through to 31 March 2021, 1,239 games received this certification. ^[3]This number has since increased, however, we are only looking at Creative Industries data up until the end of March 2021 as this is the most recent reporting period for Rockstar. Data available at … Continue reading ^[4]For more on this ‘cultural’ accreditation, and how a game set in the US about gangland crime can be classed as ‘culturally British’, see – Swedish goats, Japanese hedgehogs and Batman: the … Continue reading Of these, only two were published by Rockstar, with Grand Theft Auto V receiving the accreditation in 2015, and Red Dead Redemption 2 in 2019.

A total of £624m for all VGTR claims had been paid by March 2021, with £205m of it going to Rockstar. The result is that Rockstar has managed to claim a third of the total amount paid out whilst only being responsible for 0.16% of the games receiving the relief.

It’s worth bearing in mind that when this relief was introduced, the intent was to provide targeted support for games that were “culturally British”, and to help smaller publishers create games that might not be economically viable without the relief.

The staggering amounts paid out to Rockstar Games was raised by Lord Prem Sikka in February of this year, speaking during a debate on the Finance (No. 2) Bill, he said:

“According to its accounts, it has claimed £136.6 million in total in tax relief over the years. It has paid no corporation tax at all but has paid £67.5 million in dividends. Where exactly did those dividends come from? They came from picking the pockets of the British taxpayer. There is no other explanation for this. It does not seem to me that these kinds of tax reliefs are monitored. No evidence is provided by any government department to show what exactly the benefit to the UK economy is of this American company receiving all these tax reliefs.” ^[5]The figures used by Lord Sikka are to 31 March 2020. The full text from the debate is available on Hansard here; … Continue reading

Amount of video games tax relief paid (£ million, receipts basis) 2014-15 to 2020-21

The amount of relief paid out to video game developers in 2020-2021 increased by 48% compared with the previous year.

Despite the odd dissenting voice, there is very little scrutiny of this corporate subsidy that is spiralling out of control. To the best of our knowledge, the government has no plans to review this relief. Expect the next batch of statistics to reveal even more money paid out, and for Rockstar’s 2022 accounts to reveal yet another increase in the amount they are claiming.

References[+]

References
↑1	“It is estimated that this generous new corporation tax relief will provide around £35 million of support per year to the sector.”, Video games companies to begin claiming tax relief, HM Treasury, 19 August 2014, https://www.gov.uk/government/news/video-games-companies-to-begin-claiming-tax-relief
↑2	The corporate structure of Rockstar is explained in our report Gaming The Tax System which we published in April 2019, http://13.40.187.124/reports/gaming-the-tax-system/
↑3	This number has since increased, however, we are only looking at Creative Industries data up until the end of March 2021 as this is the most recent reporting period for Rockstar. Data available at – Video Games Certified as British through the cultural test for video games, BFI, https://www.bfi.org.uk/apply-british-certification-tax-relief/cultural-test-video-games
↑4	For more on this ‘cultural’ accreditation, and how a game set in the US about gangland crime can be classed as ‘culturally British’, see – Swedish goats, Japanese hedgehogs and Batman: the £324 million tax bung to the ‘culturally British’ gaming industry, TaxWatch, 20 November 2019, http://13.40.187.124/cultural_test_tax_relief/
↑5	The figures used by Lord Sikka are to 31 March 2020. The full text from the debate is available on Hansard here; https://hansard.parliament.uk/Lords/2022-02-22/debates/03EF4CEF-04DE-4374-BE48-BADAF2F06D4C/Finance(No2)

No Time To Pay Tax?

18th October 2020 by Alex Dunnagan

18th October 2020

How EON Productions, the studio behind the James Bond films, has minimised UK tax for decades whilst receiving tens of millions of pounds in subsidy from the UK tax payer

Introduction

The British production company behind the hugely successful James Bond series is part of a structure which minimises UK corporation tax, despite generating substantial profits for its US owners and receiving over £100m in subsidy from the UK government. After two delays due to the ongoing pandemic, Bond, a fictional series about a British civil servant, is set to return to the big screen next Spring in the 25th instalment of what is the fourth highest grossing franchise of all time.¹

However, despite the franchise bringing in billions at the cinema and raking in hundreds of millions of dollars in profit, under a tax structure set up more than 50 years ago, the Bond franchise has managed to minimise corporation tax in the UK for decades.

This report looks in detail at the financial accounts of EON Productions Ltd and associated companies (together referred to as EON) over the past decade, a period which saw the production of Skyfall (2012), SPECTRE (2015), and No Time To Die (2021).

We make no allegation that the company is behaving illegally, now or in the past. However, our research raises questions about whether government subsidy to the film industry is well targeted, and at a time of constrained public finances, the use of tax minimisation strategies by such high profile British franchises must be a matter of public concern.

We found that despite Skyfall and SPECTRE grossing just shy of $2bn at the box office, EON generated small profits and smaller tax bills in most years whilst profits in the hundreds of millions are declared overseas.

In fact, in recent years, EON has declared a pre-tax loss, while simultaneously receiving tens of millions of pounds in tax credits via the UK’s creative industry tax relief scheme. Publicly available accounts reveal that SPECTRE received £30m in tax credits, with a further £47m for No Time To Die, taking the total subsidy for the last two films to a hefty £77m. The total amount of UK tax credits received since their introduction in 2007 is likely closer to the £120m mark, with leaked emails showing that Skyfall received £24m in tax credits,² and our calculations putting the amount Quantum of Solace received at around £21m.³

Dr No Tax – a history of tax avoidance at EON productions

The James Bond films are one of the longest running film series in history with the franchise grossing over $16bn to date.⁴ From the outset the Bond franchise was produced using a structure designed to minimise tax. The finance and distribution of the films is dealt with by an American company (be it United Artists, MGM, Sony, or now Universal) while the production is done by a British company. The rights to exploit the film are however owned by a non UK company.

In 1961 Harry Saltzman and Albert R. ‘Cubby’ Broccoli acquired the rights to Ian Fleming’s Bond novels and established EON Productions in the UK to make the films. At first, United Artists (UA), was contracted to provide 100 per cent of the finance and distribute the films.

Saltzman and Broccoli’s wives, Dana and Jacqueline then created a company in 1962 called Danjaq S.A. (a contraction of their names), incorporated in Lausanne, a picturesque town on the banks of Lake Geneva, Switzerland, the type of place that many of Commander Bond’s adversaries may have used to stash their ill gotten gains over the years.⁵ In an interview, Harry’s son Steven stated that Danjaq “was set up with shares that were actually bought privately by Dana and Jacqueline separately with cash they could demonstrate was not linked to their husbands.”⁶

Under the structure set up by Saltzman and Broccoli, EON would make the films in the UK and then sell the film to Danjaq, ensuring that the producer’s profit would end up in Switzerland taxed at a very favourable rate.⁷ It appears that Danjaq had no real function other than to hold the copyright and trademarks of 007. At the time, Danjaq’s sole director was the Swiss attorney Mr Schlaeppi. As was set out in a 1991 court case between Danjaq and then distributor MGM, Mr Schlaeppi admitted to knowing little about the film industry and working only in an administrative function. He performed this function for fifteen other corporations. As described in graphic terms by the judge in that case, “If put in anatomical terms, Switzerland is Danjaq’s stomach reflexively churning the enterprise’s profits, but it is hardly a nerve center”. In fact, in that case Danjaq argued that its principal place of business, if not Switzerland, must be Great Britain, due to the “substantial and long-standing presence” of EON in the UK. The argument rested on the proposition that Danjaq and EON are in effect the same entity.⁸

The Broccolis were eventually able to assume complete control over Danjaq, and with it the rights to Bond, when in 1986 they purchased Saltzman’s original stake from UA. Cubby was free to operate as the sole owner and producer, and was later succeeded by step-son Michael Wilson (then a tax lawyer) and his daughter Barbara Broccoli, who together run the franchise to this day.

Danjaq became incorporated in the United States in the 1990s in Delaware. However, although Danjaq has changed jurisdiction, and the financier and distributor has also changed over the decades, the key arrangement that allows for EON to minimise UK tax remains intact today.

EON still makes the films (but makes little profit from them), Danjaq still owns the rights, and distribution and finance are still dealt with by an outside third party.

In fact, EON state in their 2015 accounts that once the production of a film has been completed, “the film is sold for a price equal to the total cost of production less the amount received in respect of UK Film Tax Credits.”⁹ This ensures that minimal taxable profits arise in the UK as valuable rights to exploit the film are sold for no more than the cost of production.

Structures like this are not unusual in the film industry, but they do raise questions about whether they result in a fair distribution of profit between countries.

EON have stated on the record that the profits are all properly declared in the UK or the US, and that no profits are sheltered in tax havens. This suggests that the vast majority of profits made by the Danjaq and EON, and any taxes due on them are declared in the US.

How much profit is Bond really making?

As Danjaq is a Delaware company we cannot see how much profit it makes from each film. It is also not possible to simply deduct the costs of producing a film from cinema receipts in order to look at the profitability of a film.

The production cost only comprises part of the total cost of a film. In addition, studios and distributors will spend substantial amounts on marketing and the physical printing of copies. For your average blockbuster with a budget of $100m plus, a film’s production budget only makes up 37% of the total cost.¹⁰ On top of this cinemas also take a chunky percentage of total ticket sales.

On the revenue side, cinema sales make up less than half of a blockbuster’s revenues, with successful films making money for years though TV deals, DVD sales and airline broadcast fees.

All of this makes it very difficult to see a film’s total profitability from the outside.

However, by taking a detailed look at the evidence available for the last three Bond films we are able to get a good idea of how much real money is being made.

Skyfall

Detailed financial figures for Skyfall are available with thanks to the North Korean secret service.

In November 2014, a hacker group leaked over 170,000 emails from Sony Pictures Entertainment, thought to be in response to Sony releasing the film ‘The Interview’ which poked fun at Supreme Leader of North Korea Kim Jong-un. These emails give an insight into the otherwise obscure of film finance.

According to the leaked emails, Skyfall, which grossed $1.1bn worldwide, made $232m in profit for the distributors MGM and Sony, of which Sony kept 25 per cent despite putting up 50 per cent of the movie’s costs. A leaked document from Sony revealed that Danjaq earned $109m on Skyfall.¹¹ With these profits sitting outside the UK, EON was able to post pre-tax profits of less than £2m in the UK for the 2012 and 2013 years in which Skyfall was at the cinema. Danjaq’s profits were almost guaranteed. With the distributors putting up all the money to produce the films, Danjaq is understood to earn money from each ticket sale, in what is known as a “first-dollar gross” deal.¹²

SPECTRE

According to the accounts of B24 limited (the specific EON production company responsible for SPECTRE) the production cost of the film was £182m. Within the Sony leaks emails we can also see discussion among studio executives about box office projections for SPECTRE of $500m international and $209m in the US.¹³ The executives deem this to be enough in order to green-light the film to begin production, and is therefore almost certainly enough to break even, but would likely allow for some profit. Considering SPECTRE grossed $880m worldwide,¹⁴ not to mention the revenues generated from DVD/VOD sales, it is safe to assume that the total profit for this film was over $100m, with Danjaq receiving a substantial amount.

However, despite the billions in revenues and hundreds of millions in profit generated by SPECTRE and Skyfall, practically no profits are realized by the UK based production company responsible for creating the films.

EON’s accounts show a small pre-tax profit for 2008-2014 on a group level, which then turns into substantial pre-tax losses following the release of SPECTRE. While Skyfall and SPECTRE are grossing almost $2bn between them, and hundreds of millions of dollars in profit are going to MGM, Sony, and Danjaq, EON in the UK made a net pre-tax loss of £33m for the decade to 2018.

Film	Budget	Box Office	Tax Relief
Quantum of Solace	£106,891,959	$589,580,482	£21,378,391
Skyfall	£138,197,058	$1,108,561,013	£24,000,000
SPECTRE	£182,431,933	$880,674,609	£30,005,367
No Time To Die	£199,472,744	Released Spring 2021	£46,791,492

You Only Pay Twice – UK Film Tax Relief

Even though the producers of James Bond have arranged their affairs to make sure that very little profit stays in the UK, that has not stopped them from seeking substantial hand-outs from the UK government.

The way in which film tax relief works is that it allows for film production companies to claim a tax credit of up to 25% of the money they spend making the film in the UK (up to a maximum of 80% of the film’s core expenditure). This credit is deducted from any corporation tax bill if the film company makes a profit. If the company makes a loss, the company can claim cash back from HMRC. Since 2015, EON’s accounts show that it has been receiving the cash credit from HMRC arising from the production of the Bond films. The British taxpayer is effectively subsidising a highly profitable franchise that has been operating since the early 1960’s.

Film Tax Relief (FTR) is part of the UK Creative Sector Reliefs. All creative sector tax reliefs are designed to promote British culture, with productions having to pass a “cultural test” administered by the British Film Institute before accessing subsidy.

That James Bond is a product of British culture is beyond any doubt, and as a result it is perfectly entitled to claim UK tax credits on UK production spend. The story was written by a former WW2 British intelligence officer, about a British operative working for the UK’s Secret Intelligence Service MI6. Despite the world travels of 007, London will forever be the home of Bond. Barbara Broccoli, who alongside Michael Wilson was awarded an OBE in 2008 for services to the film industry,¹⁵ has gone on record about how British Bond films are, saying in 2009 “The Bond films were made in Great Britain, they were started by my father Albert Broccoli, he moved to the United Kingdom in 1952 and felt England was home.”¹⁶

While a lot of filming is done internationally, the productions are centered around Pinewood Studios, situated just outside of London, which has its own 007 stage. Editing and post-production work on SPECTRE was split between Pinewood and a further office in Soho.¹⁷

Brits are proud of the James Bond franchise. Daniel Craig in his capacity as Bond was paraded before the world at the London 2012 Olympics, acting as a bodyguard to the Queen as she made her way to the opening ceremony. This stunt delighted executives at Sony Pictures, who noted how it raised the profile of Bond in the year that Skyfall was released. Wishing to replicate this level of exposure, the studio executives contemplated having Bond present at multiple events in 2015, from the Super Bowl to the UEFA Champions League Final.¹⁸

Politicians are keen to show off the cultural export, with George Osborne, the then Chancellor of the Exchequer, tweeting in 2015:¹⁹

All of this means that Bond films are eligible for large amounts of subsidy from the UK government.

British Film Tax Relief is far from the only way in which the Bond films can claw back production costs. SPECTRE received at least $14m (and potentially up to $20m) in tax incentives from the Mexican government for the opening sequence to be shot in Mexico City and to show the country in a positive light. The president of MGM Jonathan Glickman said in an email “By all accounts we can still get the extra $6M by continuing to showcase the modern aspects of the city…Let’s continue to pursue whatever avenues we have available to maximize this incentive”.²⁰ The production also received millions from product placement. Last year The Mirror reported that No Time To Die had netted a franchise record of £75m in endorsement deals for the likes of Heineken and Aston Martin.²¹

Film Tax Relief was introduced in 2007. One of the pre-requisites for receiving Film Tax Relief is being certified as ‘culturally British’ by the BFI. Quantum of Solace was awarded this certification in 2008, as was Skyfall in 2012, followed by SPECTRE in 2015.

Although we only see tax relief in the accounts for SPECTRE and No Time To Die, given the cultural British accreditation, it is almost certain that both Quantum of Solace and Skyfall also received UK Film Tax Relief, and that we are unable to see it due to changes in accounting practice.

With a budget of £107m, we estimate that Quantum of Solace will have received around £21m in tax relief. A leaked Sony email from 14 October 2014 makes reference to $38m (£24m in 2012) in tax credits for Skyfall,²² the vast majority of which will be UK Film Tax Relief. Accounts for B24, the company behind SPECTRE, show the company receiving £30m in tax film credits. Accounts up to 31 December 2019 for No Time To Die show it has become the most expensive Bond film to date, with a cost of £200m, and with £47m so far claimed in credits – listed as “tax credit recognised in work in progress” in the accounts. Corresponding 2019 accounts are not yet available for EON.

This takes the tax credit received for SPECTRE and No Time To Die to £77m, and the estimated total tax credit for the four films since the introduction of the scheme to £122m.

Again, we stress there is nothing contrary to law about the Bond franchise claiming tax credits. As a UK production of a culturally British product, the producers of Bond are perfectly entitled to claim tax credits.

However, we do believe that this example raises legitimate questions about how the tax credits system works in practice.

On Her Majesty’s Service?

International tax rules state that profits should be allocated based on where value is created, with tech companies often using this argument to explain why they only pay taxes in the US. If this is the case, why isn’t a significant amount of tax paid on the profits of Bond films in the UK?

Bond films are produced in the UK, by a British company, and receive production subsidies from the UK government on that basis. It would therefore be reasonable to expect that most of the profit generated by the films is declared in the UK. This is certainly the expectation from some MPs. Mark Spencer, the Conservative MP for Sherwood, stated in Parliament during a debate on tax avoidance and multinational companies on 03 February 2016:

“We are blessed with a global taxation system agreement whereby companies pay tax not on the profit they make in the country but where they add the value and create the IP…. I was fortunate enough to go to the cinema to see “Spectre”, the latest James Bond movie, which was created in Pinewood Studios in the UK. Tax on the profits from those movies should be paid in this country, not all over the world.”²³

However, as our research has demonstrated, despite Bond’s decades long association with Britain which has seen the franchise become a landmark of British identity, when it comes to profits, Bond is not really British at all.

From the very beginning, the Bond franchise was structured to minimise UK corporation tax. The films used Swiss banks and shell companies in Switzerland and then Delaware in order to channel profits out of the UK.

No Time To Die, the latest film in the Bond series, has seen Universal Pictures step in to replace Sony, with Universal now set to distribute the film internationally. Though an important function, distribution and finance could arguably be provided by companies anywhere in the world. What can’t be substituted in James Bond is the British story, cast, production, and 007 stage at Pinewood Studios. If HMRC is unable to tax the profits on the Bond franchise, how does the government intend to fund MI6?

TaxWatch first contacted EON Productions Limited for a comment on our research in February 2020, and again in October 2020. EON ignored several requests to engage with us on this report and did not respond to four separate deadlines to provide a comment.

Eventually, a comment was provided via the law firm Schillings on behalf of EON, at 2.30pm on a Saturday, the day before publication. It reads as follows:

“Since the 1960s Danjaq has chosen to make the James Bond films in the UK through Eon Productions, resulting in the investment of more than half a billion dollars in the UK film industry, the employment of tens of thousands of people, and showcasing the talents of British film to the world.

All the income from the James Bond films received by Eon and Danjaq is subject to tax in either the UK or USA. None of the income is sheltered in a tax haven. Eon has utilized the UK tax credits to help fund the making of Bond films in the manner intended by the government. This has enabled the Bond films to continue to be made in the UK to the benefit of the UK film industry and UK economy.”

It is certainly the case that the production of Bond films does lead to a substantial amount of money being spent in the UK film industry, and this provides a substantial benefit for people working in the industry. However, it is not clear why this means that profits made by the film should be declared outside the UK.

Background research for this report was aided greatly by the book “Some Kind of Hero: The remarkable story of the James Bond films” by Matthew Field and Ajay Chowdhury (The History Press, 2015).

A PDF version of our report is available here (printer-friendly version here)

Image by Glen Ratcliffe

1 Some box office rankings place the James Bond films third in lists of highest grossing franchises of all time. These lists often involve the non EON films Casino Royale (1967) and Never Say Never Again (1983).

2 Email from Sony Executive Andrew Gumpert, dated October 14 2014, from the Sony Leaks, available here: https://wikileaks.org/sony/emails/emailid/80455 The majority, if not all, of this £24m is likely from the UK. However, given that it does not show in any publicly available accounts, we cannot be certain that this is all UK Film Tax Relief.

3 Accounts for B22, the EON Special Purpose Vehicle company that produced Quantum of Solace, show that Quantum of Solace has production costs of £107m. Film Tax Relief allows for a payable cash rebate of up to 25% of UK qualifying expenditure, up to 80% of core expenditure. 25% of 80% of £107m is £21.4m

4 $16.3bn in ticket sales when adjusted for inflation, research conducted by Forbes in 2018, available here: https://www.forbes.com/sites/jeffewing/2018/09/26/studied-not-stirred-bond-in-numbers-analyzes-everything-james-bond/#2ad7df284e1a. Unadjusted, the series has grossed $7.1bn, researched conducted by The Numbers, available here: https://www.the-numbers.com/movies/franchise/James-Bond#tab=summary

5 Scaramanga from The Man With The Golden Gun kept his money in a Swiss bank, as did Ernst Blofeld in On Her Majesty’s Secret Service.

6 Interview with Steven Saltzman, 16.11.2011, as featured on page 52 of Some Kind Of Hero, by Matthew Field and Ajay Chowdhury

7 Ibid.

8 In 1991 the holding company Danjaq and distributor MGM had a disagreement regarding MGM selling the distribution rights of the Bond film. Further details can be find in the court records for Danjaq, SA v. MGM/UA COMMUNICATIONS, available here: https://law.justia.com/cases/federal/district-courts/FSupp/773/194/1608047/

9 2.11 Revenue, Eon Productions Limited annual report and financial statements for the year ended 31 December 2015

10 Analysis by film industry data researcher Stephen Follows. A more thorough explainer on how blockbusters make money is available at his website here: https://stephenfollows.com/how-movies-make-money-hollywood-blockbusters/

11 Pursuit of James Bond Film Rights Kicks Into High Gear, article for the Wall Street Journal by film business journalist Ben Fritz, Available here: https://www.wsj.com/articles/pursuit-of-james-bond-film-rights-kicks-into-high-gear-1446156132

12 Article on the financial performance of Bond films, in entertainment journal Deadline Hollywood from 21 March 2016, available here: https://deadline.com/2016/03/spectre-profit-box-office-2015-james-bond-1201723528/

13 Spreadsheet “BOND 24 forecast 7.17.13.xlsx”, available at https://search.wikileaks.org/?q=bond+24+forecast

14 Worldwide Box Offce for SPECTRE, at The Numbers, available here: https://www.the-numbers.com/movie/Spectre#tab=summary

15 Barbara Broccoli net worth, at ‘The Richest’, available here: https://www.therichest.com/celebnetworth/celeb/producer/barbara-broccoli-net-worth/

16 Interview with Barbara Broccoli, BBC Berkshire, 07 April 2009,available here: http://www.bbc.co.uk/berkshire/content/articles/2009/04/07/albert_broccoli_cloisters_wing_feature.shtml

17 Interview from 01 March 2016 in Pro Video Coalition with the editor of SPECTRE, Lee Smith ACE, available here: https://www.provideocoalition.com/art-of-the-cut-with-lee-smith-on-cutting-007-s-spectre/

18 Email between Sony Executives, 29 September 2014, available here: https://wikileaks.org/sony/emails/emailid/199504

19 Tweet from then Chancellor of the Exchequer, George Osborne, on 30 May 2015, https://twitter.com/george_osborne/status/604711170902241280

20 Email from Jonathan Glickman, President of MGM, to Michael Wilson and Barbara Broccoli, among others, dated November 13 2014, from the Sony Leaks, available here: https://wikileaks.org/sony/emails/emailid/79884

21 Bollinger and Aston Martin bring in the big bucks for the next James Bond film, The Mirror, 20 Aril 2019, available here: https://www.mirror.co.uk/film/bollinger-aston-martin-bring-big-14439798

22 Email from Sony Executive Andrew Gumpert, dated October 14 2014, from the Sony Leaks, available here: https://wikileaks.org/sony/emails/emailid/80455

23 Tax Avoidance and Multinational Companies, 03 February 2016, https://hansard.parliament.uk/Commons/2016-02-03/debates/16020363000001/TaxAvoidanceAndMultinationalCompanies

Swedish goats, Japanese hedgehogs and Batman: the £324 million tax bung to the ‘culturally British’ gaming industry

20th November 2019 by Alex Dunnagan

20th November 2019

Swedish goats, Japanese hedgehogs and Batman: the £324 million tax bung to the ‘culturally British’ gaming industry

Video Games Tax Relief (VGTR) has cost the taxpayer £324 million since it was introduced.
To access funding, developers are required to gain certification from the British Film Institute that their game is “culturally British”.
Research from TaxWatch demonstrates that the “cultural test” administered by the BFI is meaningless, with games able to gain taxpayer funded subsidies even if they are produced overseas, and regardless of their subject matter.
VGTR is essentially a tax loophole, with costs spiralling out of control.

Summary

Video Games Tax Relief (VGTR) has cost the UK taxpayer £324 million since the scheme was introduced in 2014. In the financial year 2018-2019, claims were made for a total of £103 million. The measure was initially due to run until March 2017, with a total budget of £115 million, and the cost was scheduled to be £35 million each year. Costs have gone far beyond what was originally intended. Now, the scheme has been extended to 2023, by which point it is expected to have cost well over half a billion pounds.

In order to benefit from the credits, games need to be certified as ‘Culturally British’. Games are certified based on a test conducted by the British Film Institute (BFI). As of the time of writing, 535 games have been granted the status, including Marvel Ultimate Alliance, Halo Wars 2, Mortal Kombat X, Tom Clancy’s The Division, Lego Star Wars, and Sonic Forces – titles which on the face of it appear to have little to do with British culture. Though we cannot confirm that all the games on this long list are claiming relief, given the fact that they have gone through the trouble of applying for certification, it would be strange if they were not.

Given the large amounts of money being spent on Video Games Tax Relief, and the centrality of the cultural test in accessing the scheme, TaxWatch put in a Freedom of Information request to see how a few of the more ridiculous sounding titles were granted certification. However, the BFI has refused to disclose information relating to any games being certified as culturally British, believing it is not in the public interest to show how developers have claimed hundreds of millions of pounds in tax relief: a decision which we are appealing with the Information Commissioner’s Office.

In the absence of any assistance from the BFI, TaxWatch has scored a selection of games against the BFI’s own published criteria in order to understand more about how the BFI’s cultural test works in practice. These games had all been certified as culturally British by the BFI.

What we found is that because of the way in which the test has been constructed, the BFI’s cultural test is difficult to fail. Games developed anywhere in the European Economic Area, in the English language, and written by a British citizen, are able to claim that they are “culturally British”, regardless of the game’s content. There is no requirement for any reference to the United Kingdom in the game. A quarter of the points are awarded if the game is in an “undetermined” location and we don’t know the main character’s nationality – a criteria that even Sonic the Hedgehog, a blue hedgehog created by a Japanese games company, passes.

Although Video Games Tax Relief was supposedly set up to assist small developers produce games of cultural value that may not have been economically viable without the relief, our findings show that the majority of the money is going to big budget games that probably would have been made regardless of whether or not the VGTR existed. The result is that Video Games Tax Relief has become a tax loophole, providing large subsidies for large, multinational games companies.

How Video Games Tax Relief works

In order to gain certification as ‘culturally British’, a game must score a minimum of 16 out of 31 points on the BFI’s cultural test, with a ‘Golden Points Rule’ in place which is supposed to ensure that the games are of cultural value, and don’t qualify just from being made in the UK. However, even with this rule, TaxWatch’s analysis of the test found that any game is still able to pass the test so long as it is:

In the English language
Developed in the European Economic Area by EEA citizens or residents
Has a game script or narrative written by a British citizen, regardless of the underlying subject matter which the game is based on.

The BFI states that the Golden Points Rule exists to ensure that the certification puts sufficient emphasis on creative content, and not just the location of the developers. This test is key in allowing the subsidy to be lawful under EU rules.

From our own scoring of games, we have seen that when games fall into the Golden Points Rule, they are often left having to score the full four points in section A3 – “Video game based on British or EEA subject matter or underlying material”.

The Cultural Test Guidance Notes provided by the BFI state that four points will be awarded if the game depicts a British story, or relates to another EEA state. So far, this makes sense – and appears to encourage the inclusion of British cultural references within games. However, a game can also score these four points if:

“the underlying material (e.g. book, story, film, game, television or animation programme, an original screenplay, script, or article) is written by a British/EEA Citizen or resident”.¹

What is not clear here is what exactly constitutes underlying material. Our research demonstrates that a game set in New York, inspired by an American comic, using American characters (e.g. Batman) could still be granted certification as “culturally British” if the script of the individual game is written by a British citizen.

There is a further “undetermined location rule”, wherein a game can score 3 points for it being set in an undetermined location, and 1 point if the main character is from an undetermined location. The rule states that in order to be eligible for these points, the game must also receive one point for being either based on British subject matter (i.e. written by a British citizen), representing British creativity, or, in the English language. The test is supposed to ensure British cultural value is included in games involving non-human characters or fantasy settings, but given that almost every game is in the English language, this rule is essentially meaningless.

The ease with which Video Games Tax Relief can be accessed has attracted the attention of tax advisers, who are marketing the scheme to developers. Some companies go as far as to boast that they have a “100% success record”.²One company has an FAQ on VGTR, with one question being “my game is not based in Britain, can I still qualify?”, and the answer stating “The “British” test is very wide and so many games will achieve enough points to be considered culturally British.”³

Once the BFI certifies a game as culturally British, developers can then apply to HMRC for tax relief. The value of the relief is 20% of the production cost of the game, deducted from the developer’s corporation tax bill, or given as a cash credit if the game is making a loss. In order to receive this relief, developers need a permanent establishment in the UK and to be within the UK Corporation Tax Charge.

The golden points rule. Looks very complicated. In practice it just means you need an EEA citizen involved in the writing of the game.

Video Games Tax Relief and the Single Market

To comply with European Union internal market rules, the UK cannot simply give state aid to subsidise an already profitable sector. This would unfairly advantage the British gaming industry over that of other EU states. However, if the purpose of the tax relief is to protect British culture, then the scheme can be compliant with EU law.

In 2013, the European Commission (EC) investigated the UK government’s proposal to introduce VGTR, and determined it to be compatible with the internal market rules. While the Commission was initially sceptical, the UK was able to argue that culturally British games were in decline, and that “culturally significant games may have production costs equal to global games but a significantly smaller market”. The logic was that the scheme would be limited to games that would not be attractive to an international audience. A further argument put forward by the UK was that “culturally British elements of game narratives are being eroded in an attempt to secure the global publishing deals needed to fund their development”. It is hard to see how successful franchises such as Halo, Mortal Kombat and GTA fit into this.

The EC stated that “the incentive objectives of the fund would be to make cultural products that are likely to be uneconomical, commercially viable, thereby promoting the production of new cultural products that would not have been made in the absence of the tax relief”. HMRC figures show that for the 2018-2019 financial year, 13% of Video Games Tax Relief claims were for more than £500,000 – accounting for 82% of the total. The majority of relief therefore was directed at high-budget productions, which would have been commercially viable regardless of whether or not they were to receive VGTR.

In order to ensure that the subsidy gained was adopted by the UK government and then approved by the European Commission, TIGA, a trade association for the UK games industry, lobbied both the UK government and the European Commission extensively. The association gave 203 media interviews on VGTR, and issued 162 press releases. TIGA claims to have persuaded a sceptical EU Commission in 2014, arguing that VGTR will not distort the EU’s internal market, and even helped design the ‘genuine cultural test’.

Our report demonstrates the dangers in allowing a lobby group too much influence in policy design.

TaxWatch scores

In the absence of any assistance from the BFI, we have scored five games ourselves to better understand how the cultural test works. We selected the games, initially sceptical that they could be certified as “culturally British”, but as the scoring went on, the results quickly showed that this is a very difficult test to fail. Regardless of where the game is set, the characters in it, or even where it is made, the games make the grade.

For the purposes of this report we have not looked at how much, if any, tax relief the games developers are receiving in every case we scored. However, the BFI certification is a requirement of the Video Games Tax Relief scheme, and there is little point in gaining the certification from the BFI if the developers do not intend to apply for tax relief. In some cases, the main developer of the game may not be the company applying for tax relief because they themselves do not qualify for relief (for example if they were not based in the UK and have no UK establishment). Developers of parts of the game, or add-ons, could have submitted the game for certification in order to apply for relief themselves.

Grand Theft Auto V

Set in a fictitious representation of Los Angeles, with the main characters committing crimes including soliciting prostitutes and murder. Grossed over $6bn in revenue. GTA V is developed by Rockstar North, a UK-based company, awarding it 11 points, features innovations in gameplay for a further 1 point, and as with all the games we looked at, is in the English language for another 4. The game falls into of the Golden Points Rule, but passes due to the fact that the creators of the game are all British citizens, giving it another 4 points.

Score 20/31

Tom Clancy’s The Division

The Division demonstrates how the design of the cultural test allows games with no relation to British culture to pass, even if it is not made in the UK or by British citizens.
A number of criteria in the test relate to where the game is made. The points in this part of the test can be scored as long as the game is made in the European Economic Area, that is the whole of the EU plus Norway, Iceland and Lichtenstein.

This game is set in a near future New York City, with American characters fighting their way through Manhattan. It scores 12 points by virtue of being developed by Swedish company Massive Entertainment (8 points) and being in English (4 points). The remainder of the points we believe must have been awarded for the game being based on an underlying story by an EEA citizen, due to the fact that the game was written by a Swede. This is a highly questionable interpretation of the cultural test. The inspiration for the game was the fictional world established by the late American novelist Tom Clancy, hence the title. However, it appears that the game is able to score points for the actual plot being written by an EEA citizen.

Score 16/31

Goat Simulator

This game allows you to experience life as a goat, if goats had the ability to summon flying saucers and be crowned King of the Goats. Created as a joke by Swedish developer Coffee Stain Studios, the game demonstrates how the undetermined location rule can allow a game with absolutely no connection to the UK whatsoever to be granted culturally

British certification. In our scoring, 8 points are awarded for staff being from the EEA, with a further 4 for the English language. The fact that ‘Goatville’ is in an undetermined location, and that we don’t know the nationality of the goat, awarded the game a further 4 points to take it over the line.

Score 16/31

Batman Arkham Knight

Set in America and based on an American comic, where you play an American billionaire superhero that has a love/hate relationship with bats. Batman is developed by London-based Rocksteady Studios, for 11 points, and receives another 1 point for creativity in the gameplay. Again, being in English awards the game 4 points. The game then falls into the Golden Points Rule, but receives another 4 points for being based on a story by UK residents.
This game demonstrates how the part of the test relating to ‘underlying subject matter’ can be open to a broad interpretation. Most people would understand that the underlying subject matter of a Batman game to be in fact American.

Score 20/31.

Sonic Forces: Speed Battle

Sonic the Hedgehog is a 28-year-old Japanese franchise, following a blue hedgehog named Sonic in his quest to defeat a mad scientist that imprisons bunny rabbits. As it is set in an undetermined location, and we don’t know the nationality of our protagonist, Sonic, the game is awarded 4 points. The game was developed by UK-based Sega Hardlight, gaining it 8 points, and the soundtrack composed by the London Symphony Orchestra for a further 1 point. The English language scores the remaining 4 points. As with some of the other games we have looked at, were it not for the English language points, the game would not qualify.

Score 17/31.

For a tax relief established purportedly to further British culture, and help finance games that otherwise would not be made, it is hard to see how any of these games fit into that description. The test is almost meaningless in regards to promoting British culture. A full spreadsheet of our findings is available on the TaxWatch website.
Other games gaining ‘culturally British’ status
In addition to the games we scored against the BFI criteria, some of the other games gaining culturally British status by the BFI were as follows:

Gears of War: Ultimate Edition – Games in this multi-billion dollar Microsoft franchise follow American accented Delta Squad on planet Sera battling aliens.

Halo Wars 2 – Another multi-billion dollar Microsoft franchise, set in space, involving American accented humans battling aliens.

Marvel Ultimate Alliance – Based on the American comic book universe created by Stan Lee, this game sees characters such as Captain America and Thor battling it out.

Forza Horizon 2 – Part of the Forza racing games series, which has grossed over $1bn. Does include Jaguar and Aston Martin cars.

The Lego Ninjago Movie – Published by the American company Warner Bros, and based on the Danish toy, this movie spin-off has players controlling a yellow man dressed as a ninja solving puzzles.

Mortal Kombat X – The tenth instalment in the series, this fighting game allows the player to tear the head off their opponent, showcasing it dangling and bloody with the spine still attached.

Donald Duck in Treasure Frenzy – Based on the character created by Walt Disney in 1934, this game features a duck collecting coins. Donald is not known to have frequented any British ponds.

Why it is important

Recent statistics reveal that £324 million has been claimed since the scheme’s roll-out. Our report, Gaming The System, highlighted the fact that the developers of GTA V were able to claim £42 million in tax relief (19% of the total awarded 2015-2017), despite the fact that the game had grossed over $6 billion in revenue. Rockstar North, GTA’s developer, has already contacted the BFI to seek accreditation for the forthcoming GTA VI.

All of the VGTR claims are made as a direct result of passing the BFI’s cultural test. Given the amount of public money involved in these claims, and the fact that many games are published by foreign studios, on subject matter that is not culturally British, it is imperative that the BFI is transparent in the decision making process. The public deserves to know how and why multi-billion dollar companies are receiving tax relief.

In 2014, following the European Commission’s decision regarding VGTR, the then Chancellor George Osborne stated: “This is a key industry of the future and I want Britain to be one of its biggest centres. 95% of UK video games companies in the UK are SMEs”.⁴

Though the majority of claims being made may be smaller studios, most of the money is going to larger studios with significant budgets.

In order to comply with EU law, a government cannot subsidise an industry. The culture test was introduced to allow a subsidy to the UK games industry, supposedly by ensuring that games are of cultural value.

Our research appears to show that this is not the case, as it is a very easy test to pass – regardless of the content of the game. The fact that games from across Europe have been claiming this relief, despite often having nothing to do with British culture, shows that Video Games Tax Relief has in essence become a tax loophole which allows large studios to get free money. TaxWatch is calling for a comprehensive review of this relief before it spirals any further out of control.

The lead author on this report was Alex Dunnagan
The cover photo, Brown Goat at Daytime, is by Adrian Matei on Unsplash

1https://www.bfi.org.uk/sites/bfi.org.uk/files/downloads/bfi-british-film-certification-cultural-test-for-video-games-guidance-notes-2016-03.pdf

2https://www.myriadassociates.com/services/video-games-tax-relief/

3https://www.ouryclark.com/site-assets/pdf/quick-guides/corporation-tax/Oury-Clark-Guide-to-Video-Games-Tax-Relief.pdf

4https://www.gov.uk/government/news/video-games-tax-relief-passes-final-hurdle

Swedish goats, Japanese hedgehogs and Batman

18th November 2019 by George Turner

An American superhero, a Japanese hedgehog and a simulation about the life of a goat are among the video games that have been able to cash-in on a government scheme to promote ‘culturally British’ games, a new report from TaxWatch has found.

Published today – Swedish goats, Japanese hedgehogs and Batman: How the BFI assess games as “culturally British” for Video Games Tax Relief – has analysed the ‘culturally British’ test administered by the British Film Institute which has unlocked hundreds of millions of pounds in tax relief to the video games industry.

The report scores a number of games against the British Film Institute’s own cultural test criteria. The report finds that the test, which is supposed to ensure that only games which are culturally British gain access to support, is meaningless, with the criteria being drawn so widely that practically any game made in the UK, or European Economic Area could gain certification, regardless of the underlying subject matter.

The loose rules around the cultural test have led to the Government spending tens of millions of pounds more than originally intended on support for the video games industry.

TaxWatch UK Researcher, Alex Dunnagan, commented:

“When the government announced the Video Games Tax Relief Scheme it said it was there to support the production of culturally British games that could not be produced without subsidy. However, since its launch the scheme has given away tens of millions of pounds of taxpayer’s money to large, well-established international franchises produced by big multinational companies.

“After analysing the British Film Institute’s cultural test, the gateway to the subsidy, we found that developers don’t have to be that creative in their claims. The test is so easy to pass that even Batman gets awarded culturally British status.

“On the evidence we have found it is hard to avoid the conclusion that the “culturally British” test is a fig leaf designed purely to get around European Commission rules on state aid.”

The full report can be found here.
A PDF version can be downloaded here.
A spreadsheet setting out the scoring of the games undertaken by TaxWatch can be found here.

The games scored by TaxWatch were: Grand Theft Auto V, Tom Clancy’s The Division, Goat Simulator, Sonic Forces and Batman Arkham Knight. All of the games have been certified as culturally British by the British Film Institute.

This research was featured in The Times and Law360 among others.

BFI refuses to disclose information regarding GTA V tax credit scandal

13th August 2019 by Alex Dunnagan

The BFI refuses to disclose information regarding the Grant Theft Auto V tax credit scandal, claiming that it would not be in the public interest to do so.

BFI refuses to release any information relating to GTA V being certified ‘culturally British’
Disclosure would supposedly ‘prejudice the commercial interests of Rockstar North’
Following an appeal from TaxWatch stating that disclosure is in the public interest, BFI are holding a review into the decision

The BFI has responded to a Freedom Of Information (FOI) request from TaxWatch, refusing to release documentation relating to GTA V being certified ‘culturally British’.

The BFI’s decision follows an investigation into how the multi-billion dollar game claimed £42m in tax credits from the UK government.

As part of their research, TaxWatch asked the BFI how a game set in a fictitious representation of Los Angeles involving murder, car-jacking, and drug-running could be certified as ‘culturally British’. This certification allowed the developers to claim the tax credits.

The BFI has stated that they do not believe that it is in the public interest to disclose this information.

Commenting on the BFI’s refusal to release the information, Alex Dunnagan researcher at TaxWatch said:

“It is ridiculous for the BFI to say that it is not in the public interest to reveal how they have come to the conclusion that GTA V is culturally British.

“The decision by the BFI resulted in tens of millions of pounds of public money being used to subsidise the most financially successful game in history – with subsidy being granted after it had already made billions in revenues for the US multinational behind the title.

“It is only right that the public is able to scrutinise decisions like this, and to understand how their money is being spent.”

TaxWatch has appealed, with the BFI now undertaking a review into the decision.

BFI

Another record year for Rockstar Games Tax Relief (RGTR)

No Time To Pay Tax?

How EON Productions, the studio behind the James Bond films, has minimised UK tax for decades whilst receiving tens of millions of pounds in subsidy from the UK tax payer

Introduction

Dr No Tax – a history of tax avoidance at EON productions

How much profit is Bond really making?

Skyfall

SPECTRE

You Only Pay Twice – UK Film Tax Relief

On Her Majesty’s Service?

Swedish goats, Japanese hedgehogs and Batman: the £324 million tax bung to the ‘culturally British’ gaming industry

Swedish goats, Japanese hedgehogs and Batman: the £324 million tax bung to the ‘culturally British’ gaming industry

Video Games Tax Relief (VGTR) has cost the taxpayer £324 million since it was introduced.

To access funding, developers are required to gain certification from the British Film Institute that their game is “culturally British”.

Research from TaxWatch demonstrates that the “cultural test” administered by the BFI is meaningless, with games able to gain taxpayer funded subsidies even if they are produced overseas, and regardless of their subject matter.

VGTR is essentially a tax loophole, with costs spiralling out of control.

Summary

How Video Games Tax Relief works

Video Games Tax Relief and the Single Market

TaxWatch scores

Grand Theft Auto V

Tom Clancy’s The Division

Goat Simulator

Batman Arkham Knight

Sonic Forces: Speed Battle

Why it is important

Swedish goats, Japanese hedgehogs and Batman

BFI refuses to disclose information regarding GTA V tax credit scandal