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Video games

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)

The gift that keeps on giving
19th January 2022 by Alex Dunnagan

Rockstar Games UK Limited (previously Rockstar North) has finally published it’s 2020 accounts, more than one year late. In fact, the publication of Rockstar’s accounts are so late that the company’s 2021 accounts are already overdue. The recently filed 2020 accounts reveal that the video game developer was entitled to £56.6m in Video Game Tax Relief (VGTR) in the 12 months to 31 March 2020. This large sum was almost half of the total VGTR paid out that year. The total amount of claims for VGTR is going up ever year, as is the amount paid out, but despite this, Rockstar appear to be capturing more and more of this relief.

The Edinburgh based games studio, which is owned by American video game giant Take-Two Interactive Software, is responsible for the development of the multi billion dollar Grand Theft Auto (GTA) series. As we wrote in Gaming The Tax System, while the UK based company develops the games, they don’t publish them, with a structure set up to ensure that the UK company turns very little profit, and therefore has little to no corporation tax liability.

VGTR – What is it?

Video Games Tax Relief was introduced by the UK government in 2014 to provide targeted support for games that were “culturally British”, with a particular focus on support for small and medium sized businesses. The idea at the time being that only smaller publishers would be interested in producing games aimed solely at the British market.

The relief works by adding notional costs to the video games producer’s accounts, reducing the taxable profit or increasing losses. Developers can deduct an extra 25% of qualifying expenditure from their taxable profit. If the game’s production company is loss-making then the developer can claim a cash credit from HMRC.

Rockstar Returns

After filing their annual return nine months late with Companies House, Rockstar’s annual accounts are finally publicly available.

Before looking at the state of Rockstar’s 2020 finances, it’s worth noting that there is a large restatement for their 2019 accounts. It was previously reported that in the year end 31 March 2019, Rockstar’s turnover was £119m and the cost of sales was £56m. These numbers have now been adjusted to show that they were actually £231m and £167m. The reason given is that there was an error in the way that staff incentive payments were accounted for, and that “in the prior period these costs have been netted off in error against intercompany rechage income”, when in fact they should have been recorded. This is quite a significant accounting error. The impact it has on VGTR claims, if any, is not known.

Turning back to the 2020 figures, Rockstar turned a pre-tax profit of £9.63m over the reporting period, but once taxation is taken into account, that number increases by £65.16m to £74.78m. The vast majority of this increase is made up by the effect of VGTR, with the remainder coming from the effects of things such as deferred taxation and changes in valuation allowance. As a result of VGTR, Rockstar was able to pay out £40m in dividends over the year.

2016

2017

2018

2019

2020

Total

Operating Profit

£3,515,268

£3,745,345

£8,242,790

£8,715,917

£9,519,819

£33,739,139

Tax on profit

£33,416,310

£13,121,157

£26,915,315

£40,035,440

£65,155,510

£178,643,732

Of which VGTR

£11,278,530

£11,918,339

£19,116,178

£37,607,824

£56,684,144

£136,605,015

Profit after tax

£36,931,578

£16,884,972

£35,216,097

£48,773,567

£74,783,921

£212,590,135

Dividends

£0

£12,500,000

£15,000,000

£0

£40,000,000

£67,500,000

The last year for which Rockstar listed taxation as a liability was 2015, when the tax was listed as a cost of -£718k. In the first five years since the introduction of the relief, Rockstar’s accounts show the company accruing £136.61m in VGTR, with total taxation for the period actually showing £178.64m in credit.

Despite only having an operating profit of £33.74m over this five year period, Rockstar was able to pay out twice that (£67.5m) in dividends to shareholders due to the subsidy the company receives from the British Government.

By the end of March 2020, 1,000 games had received “Culturally British” accreditation, [1]This number has since increased, and statistics are available for the year up until end of March 2021. However, we are only looking at Creative Industries data up until the end of March 2020 as this … Continue reading a pre-requisite for VGTR.[2]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, two were published by Rockstar, with Grand Theft Auto V receiving the accreditation in 2015, and Red Dead Redemption 2 in 2019.

Studios are able to make interim claims before a game is completed, with the relief related to the production spend. The large claims from Rockstar for the 2019/2020 financial year are likely to be related at least in part to Red Dead Redemption 2, and possibly to the production costs of new games such as a future instalment of the GTA franchise, and potentially updates to GTA Online and Red Dead Online, although there may be other games in the works that we are unaware of. With Rockstar accounting for £136.6m of VGTR by March 2020, a company with fewer than 1% of the games qualifying for VGTR is set to capture over 30% of the total subsidy.

In 2018-19, 535 video games made 345 claims and received £103 million,[3]A claim may cover several games. with Rockstar accounting for some 37% of this.[4]We wrote about this at the time with our blog post Rockstar Takes The Pot, with TaxWatch analysis featuring in the Sunday Telegraph. Just as we thought the amount of VGTR hoovered up by a single multinational couldn’t increase, in 2019-20, 605 games made 350 claims and received £121m, with Rockstar accounting for some 47% of this. – despite having not released a game since October 2018.

Video Games Tax Relief was estimated to cost just £35m a year when it was introduced.[5]“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 However, we are now seeing just one company claim alone claiming more than that.

In October last year we said:

“Seven years from the introduction of VGTR, questions need to be asked as to whether this is achieving its initial aim, creating culturally significant games and helping British developers, or is it a scheme gone awry, with hundreds of millions in taxpayer cash subsidising successful multinational enterprises?”[6]Video Games Tax Relief – 2021 Update, TaxWatch, 14 October 2021, http://13.40.187.124/video_games_tax_relief_2021/

Rockstar’s recent accounts show how it’s more necessary than ever for the UK Government to review the effectiveness of this relief. For this US owned company, VGTR is the gift that keeps on giving.

References[+]

References
↑1 This number has since increased, and statistics are available for the year up until end of March 2021. However, we are only looking at Creative Industries data up until the end of March 2020 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
↑2 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/
↑3 A claim may cover several games.
↑4 We wrote about this at the time with our blog post Rockstar Takes The Pot, with TaxWatch analysis featuring in the Sunday Telegraph.
↑5 “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
↑6 Video Games Tax Relief – 2021 Update, TaxWatch, 14 October 2021, http://13.40.187.124/video_games_tax_relief_2021/

Video Games Tax Relief – 2021 Update
14th October 2021 by Alex Dunnagan

Key facts and figures:

  • £180m paid out in VGTR last year

  • 48% increase in VGTR on the previous year

  • 55 claims for over £500,000 represent 87% of the total value of payments

Video Games Tax Relief (VGTR), a form of subsidy to the UK videogames industry, has seen a 48% increase in the past year. Originally forecast to cost £35m a year, VGTR cost £180m in the 12 months to March 2021.

The reason given for the increase is “large payments for a small number of very high-budget games and underlying growth in the value of claims1”. The intent of the scheme is to promote British culture, and to foster innovation amongst small independent games developers through subsidies. The reality however is that this scheme is increasingly being captured by large, successful, multinationals.

In 2020-2021, 55 claims of more than £500,000 equated to 16% of all claims made. These claims were worth £156m, or 87% of the total amount paid out – again an increase from last year, where claims over half a million were worth 80% of the total.

While almost half of these claims were for under £50,000, these claims are only responsible for around 2% of the total amount paid out.

It would be unfair to say that the claims paid to multinationals has a negative effect on independent, British SMEs, as it appears that the pot of money available is effectively limitless, with costs increasing year on year.

Figure 1: Amount of video games tax relief paid (£ million, receipts basis) 2014-15 to 2020-21

In order to access VGTR games must pass a test and be certified as ‘Culturally British’ by the British Film Institute (BFI). Previous TaxWatch research has demonstrated how the ‘cultural test’ administered by the BFI is meaningless, as games are able to gain subsidies regardless of the subject matter, and even if they are produced overseas.2

The Guardian revealed in 2019 how four large multinationals – WarnerMedia, Sony, Sega, and Rockstar – had claimed close to half of all VGTR.3 In the past we have analysed the accounts of videogame multinationals, finding that regardless of whether or not they turn a pre-tax profit, the companies paid no corporation tax.4 VGTR is set up in a way whereby the scheme is almost bound to ensure that the UK games industry will not pay corporation tax.

Rockstar North, a UK based and American owned videogames developer responsible for the Grand Theft Auto Series, has in previous years been the largest beneficiary of VGTR. Their latest accounts, dated January 2020, revealed that the company claimed £37.6m in Video Games Tax Relief that year, taking its total to £80m since the scheme was introduced. Of the 1,110 VGTR claims made up until that point, Rockstar accounted for a quarter of all the relief, despite only making two games that qualify as ‘culturally British’.5

Companies House shows that Rockstar North’s accounts are over six months overdue, so we are unable to comment on how much money the American owned company has received in the most recent financial year.

Figure 2: Rockstar North accounts showing as overdue on Companies House. Image taken 13 October 2021.

So what?

The cost of this tax relief is increasing year on year, with just shy of 90% of the money going to games claiming over half a million. We have seen in the past how games such as Grand Theft Auto have claimed tens of millions.

In establishing the relief, the UK argued to the European Commission that British games were in decline, and that “culturally significant games may have production costs equal to global games but a significantly smaller market”.6 Seven years from the introduction of VGTR, questions need to be asked as to whether this is achieving its initial aim, creating culturally significant games and helping British developers, or is it a scheme gone awry, with hundreds of millions in taxpayer cash subsidising successful multinational enterprises?

 

1 The “growth in the value of claims” is likely regarding the fact that a company has two years to make or rectify a claim once a project is finished.

2Swedish goats, Japanese hedgehogs and Batman: the £324 million tax bung to the ‘culturally British’ gaming industry, TaxWatch, 18 November 2019, http://13.40.187.124/cultural_test_tax_relief/

3Revealed: global video games giants avoiding millions in UK tax, The Guardian, 02 October 2019, https://www.theguardian.com/games/2019/oct/02/revealed-global-video-games-giants-avoiding-millions-in-uk-tax-sony-sega

4Global Video Games Giants: Playing the system or paying their fair share?, TaxWatch, 20 November 2019, http://13.40.187.124/video_games_giants_tax_report/

5Rockstar takes the pot, TaxWatch, 19 January 2020, http://13.40.187.124/rockstar_2019_tax_relief/

6Commission Decision of 27.03.2015 on the state aid scheme SA.3619 (2013/C) (ex 2013/N) which the United Kingdom is planning to implement for video games, European Commission, 27 March 2014, https://ec.europa.eu/competition/state_aid/cases/248371/248371_1557990_171_2.pdf

Photo by Sigmund on Unsplash

Goat

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”.2 One 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

 

World of Taxcraft – how Activision Blizzard moves billions to tax havens
4th August 2019 by George Turner
World of TaxCraft

How Activision Blizzard has moved billions of dollars of profit into tax havens

4th August 2019

  • Activision Blizzard, publisher of hit games Call of Duty, World of Warcraft and Candy Crush moved €5bn to companies in Bermuda and Barbados between 2013-2017, documents reveal.

  • The company is currently under investigation by tax authorities in the UK, Sweden and France over alleged transfer pricing irregularities and is is facing a potential bill of over $1.1bn in back taxes and penalties.

  • In the United States, Activision Blizzard has recently settled a transfer pricing dispute with tax authorities for $345m.

  • The multinational company has a complex structure with subsidiaries in a number of tax havens including Malta, the Netherlands, Barbados and Bermuda.

A PDF version of this report is available here.

Activision Blizzard is one of the most successful video games companies in the world. Headquartered in Santa Monica, California, the company’s hit titles include the World of Warcraft, Guitar Hero and Call of Duty, along with the massively popular mobile phone game Candy Crush Saga. The company is listed on the New York Stock Exchange and has a market cap of $37bn as of August 2019, making it significantly larger than rivals Electronic Arts, Take-Two Interactive and Ubisoft.

The company is the product of several mergers and acquisitions, and is divided into three groups, Activision, Blizzard, and King. Activision developed Guitar Hero and Call of Duty. Blizzard was merged with Activision in 2009 and is responsible for the development of World of Warcraft. King, originally a Swedish company but now headquartered out of London, is responsible for mobile games such as Candy Crush.

Whereas Activision and Blizzard seem to have integrated much of their structure and operations, King still forms a separate group of companies under the Activision Blizzard umbrella.

The company has had a controversial tax history in recent years. Activision Blizzard recently settled with the IRS following an examination of the company’s 2009-2011 tax returns. This saw the company having to make an additional tax payment of $345m in relation to transfer pricing issues.

In 2018, the French tax authority handed Activision a bill of $652m following a transfer pricing investigation into one of the company’s French subsidiaries for the tax years 2011-2013. The company says it vigorously disputes the claim.

The Swedish tax authority handed the company a $400m dollar bill in 2018 following an audit of their 2016 tax year. The company also says it will vigorously contest the claim.1

The company is also subject to other ongoing tax investigations and demands.

Responding to these tax controversies, Activision Blizzard have suggested that the company is now seeking to mend its ways. The company told the Sunday Times:

“We have proactively engaged with, and continue to fully collaborate with, both HMRC and other tax administrations globally to agree to the proper amount of tax due in each jurisdiction during a period of changing policies and rules.

For King, since the acquisition we have been reviewing the structures in place and we are seeking multilateral conversations among the UK, Sweden, Malta and US tax authorities by which those respective administrations would allocate our income among their respective jurisdictions.

We are a committed employer in the UK and look forward to reaching a final conclusion on the allocation of our taxable income around the world.”

In this report we explore the different structures of Activision Blizzard and King group companies and demonstrate how Activision Blizzard moves billions of dollars from its non-US operations into tax havens.

Activision and Blizzard

Activision – Revenues 2018 $2.7bn ($897 EMEA)

Blizzard – Revenues 2018 $2.3bn ($692 EMEA)

Activision Blizzard

Selected companies in the Activision Blizzard group

Activision Blizzard formed when Activision merged with Blizzard from Vivendi Games in 2009. The new company was majority owned by Vivendi, the French media giant, until 2013 when it became independent.

The company has a highly complex corporate structure which appears to work as follows: Activision and Blizzard companies in the US sell intellectual property rights (IP) to a Dutch partnership which is resident in Bermuda, ATVI C.V., and a subsidiary of ATVI, ATVI International SRL in Barbados. These entities then sublicense the IP to a Dutch company, Activision Blizzard International BV.2

Activision Blizzard International BV

Activision Blizzard International BV is responsible for the exploitation of these rights and managing the distribution of the products outside the US. This includes running the World of Warcraft servers, sub-licensing games to third party distributors, and distributing the game to local subsidiaries of Activision Blizzard for sale in their markets. The company earned €1.66bn from these activities in 2017.

Activision Blizzard International barely makes a profit, because much of the revenue it earns it needs to pay out as a royalty to the two offshore companies ATVI C.V. and ATVI International SRL. In 2017 Activision Blizzard International made profits before tax of just €55.6m, on which it paid just €7.2m in taxes. It paid €1.3bn in royalties to ATVI C.V. and ATVI International SRL.

In the five years between 2013 and 2017, Activision Blizzard International BV paid out €5bn in royalties. The vast majority of these royalties went to ATVI C.V., the Dutch partnership based in Bermuda. However, in 2017 ATVI C.V. transferred some of their IP to ATVI International SRL in Barbados. The result of this is that in 2017 about 50% of the royalties paid by Activision Blizzard International B.V. went to ATVI C.V.. We assume that the other 50% went to ATVI International SRL, however, the accounts of that entity are not publicly available.

The accounts of ATVI C.V. showed that that company generated profits of $476m in 2017 and $1.1bn in 2016 on which it paid $0 in taxes.

ATVI C.V. has 0 employees. The company’s costs are the cost of buying the intellectual property from Activision Publishing Inc and Blizzard Entertainment Inc in the US, who are responsible for developing the games.

It is this relationship that was the focus of an IRS transfer pricing investigation, with the IRS apparently taking the view that ATVI C.V. should have been paying more to the US for the IP rights. As a result ATVI C.V. had to make an additional payment of $1.4bn to Activision Publishing Inc and Blizzard Entertainment Inc, for the period covering 2009-2016. This settlement resulted in an increased tax bill of $345m.

The 2017 Profit and Loss account for ATVI C.V.

Activision Blizzard UK

In the UK, the main Activision Blizzard company is Activision Blizzard UK. This company describes its activities as a publisher and distributor of video games. The company makes significant revenues. However, the accounts show that it makes little profit in the UK.

In 2017 the company had an income of £75m, on which it made a profit before tax of just £516,000. In 2009, the company recorded sales of £455m, on which it made a profit before tax of just £22m – a profit margin of just 3.6%. In that year the company had a tax liability of £4m.

It should be noted that the revenues that appear in the Activision Blizzard UK are not all of the revenues generated by the company from UK customers.

In the latest annual accounts of the US parent company, Activision Blizzard Inc, it is stated that the UK market comprises of 12% of the total revenues of the company. If we apply that to just the revenues for Activision and Blizzard ($4.8bn in 2017), we get total estimated UK revenues of $572m in 2017. The large difference between the amount generated from UK sales, and the amount of revenue in the accounts of Activision Blizzard UK, will be accounted for by the fact that Activision Blizzard International BV in the Netherlands will generate its own income from UK customers via sales of games to third party distributors and subscriptions to the World of Warcraft servers.

With regard to revenues that are made in the UK, the profit margin on those revenues is small because Activision Blizzard UK is described as a “limited risk distributor”.3HMRC describes a limited risk distributor as a distributor which buys goods and sells them like any other, but where risks and functions are transferred back to the principal company (in this case Activision International BV). An example of how a company could limit risk is by agreeing to buy back any unsold stock so that the distributor only ends up selling stock it knows it can get rid of.4

Activision Blizzard UK LTD
  2009 2010 2011 2012 2013 2014 2015 2016 2017 Totals
Turnover £455,452,472 £342,359,000 £248,463,000 £220,704,000 £150,839,000 £149,540,000 £98,094,000 £62,085,000 £75,192,000 £1,802,728,472
Cost of Sales -£395,558,263 -£300,389,000 -£206,905,000 -£185,300,000 -£114,641,000 -£107,295,000 -£56,730,000 -£33,222,000 -£47,156,000 -£1,447,196,263
Gross Profit £59,894,209 £41,970,000 £41,558,000 £35,404,000 £36,198,000 £42,245,000 £41,364,000 £28,863,000 £28,036,000 £355,532,209
Gross Margin 13.15% 12.26% 16.73% 16.04% 24.00% 28.25% 42.17% 46.49% 37.29% 19.72%
Admin Expenses -£31,614,781 -£30,026,000 -£33,769,000 -£28,117,000 -£29,998,000 -£36,206,000 -£36,585,000 -£26,255,000 -£26,305,000 -£278,875,781
Distribution Costs -£11,868,685 -£6,450,000 -£2,529,000 -£3,292,000 -£2,648,000 -£2,490,000 -£1,915,000 -£1,052,000 -£1,010,000 -£33,254,685
Other Expenses n/a n/a n/a n/a n/a n/a -£11,000 -£7,000 -£156,000 -£174,000
Operating Profit £16,410,743 £5,494,000 £5,260,000 £3,995,000 £3,552,000 £3,549,000 £2,853,000 £1,549,000 £565,000 £43,227,743
Operating Margin 3.60% 1.60% 2.12% 1.81% 2.35% 2.37% 2.91% 2.49% 0.75% 2.40%
Profit before Tax £22,302,191 £4,321,000 £4,497,000 £3,789,000 £3,185,000 £3,086,000 £2,685,000 £1,734,000 £516,000 £46,115,191
Tax -£4,139,071 -£984,000 -£1,362,000 -£1,788,000 -£977,000 -£2,438,000 -£355,000 -£88,000 -£7,984,000 -£20,115,071
Profit for the year £18,163,120 £3,337,000 £3,135,000 £2,001,000 £2,208,000 £648,000 £2,330,000 £1,646,000 -£7,468,000 £26,000,120

The fact that Activision Blizzard is a limited risk distributor allows the corporation to argue that less profit should be allocated to the UK. This profit is instead allocated to the “risk taker” – Activision Blizzard International BV, which sees its profits eliminated with their royalty costs.

According to the accounts of Activision Blizzard UK Limited, the company is currently in discussions with HMRC over its ‘international business model’. It has set aside £8.5m as a provision in relation to tax investigations currently underway dating back to 2013. This provision is equal to 43% of the total tax liability of the company in the UK over the last ten years. The investigation is likely to be focusing on whether the allocation of profit to the UK company is fair.

Activision France

The UK is not the only authority currently in a dispute with Activision Blizzard. In December 2017 the French Tax Authority issued a re-assessment of the company’s tax bill between 2011 and 2013 due to transfer pricing issues they found at one of the company’s French subsidiaries. The total tax bill demanded including penalties and interest was €571 million.

The company says they dispute the claim and will vigorously defend it through the courts if necessary.

UK taxation of royalties

As TaxWatch has written about previously, the UK government has introduced a new tax on royalties shifted to some tax havens, including Bermuda (but not Barbados) where those royalties originate from a UK source.

If this charge was effective and was to apply to all of the royalty payments of Activision Blizzard made to offshore jurisdictions, then we estimate that €325m of royalty payments would be subject to the charge, raising tax revenues of €65m (£57.2m) a year.

This is on the basis that Activision Blizzard’s revenue from the UK comprises about 25% of its non-UK revenues, and so the charge should be applied to 25% of the royalties being moved from the Netherlands company to Bermuda and Barbados.5

However, at the moment, we believe that the tax would only apply to royalties paid to the Dutch C.V. with an address in Bermuda, ATVI C.V.. This would result in a bill of approximately €32.5m (£26.1m).6

ATVI International SRL in Bermuda will not be subject to the charge because, as we noted in our report on the royalties tax, the UK government will only apply the charge to royalties shifted to countries where the UK does not have a full tax treaty. This excludes Barbados, and other tax havens such as Ireland, Switzerland and others from the charge.

The UK government is also expecting large multinational companies to restructure their activities into tax havens which have a tax treaty with the UK in order to avoid the charge, and have given them a long run-in to allow them to do this. It is our expectation therefore that when the charge becomes effective in the 2020/21 tax year the internal royalty payments of Activision Blizzard will not be taxed in the UK.

King – Revenues in 2018 $2bn ($599 EMEA)

Selected companies from the King group

King was established in Sweden in 2003 by an Italian, Riccardo Zacconi, and a group of British and Swedish investors and games designers.7 The company makes games for mobile phones, including the hugely popular Candy Crush.

In 2005 the company attracted investment from Apax Partners, the private equity firm, and was floated on the New York Stock Exchange in 2014. Activision Blizzard bought the company in 2016 for $5.9bn.

When the company was floated on the stock exchange it used a holding company based in Ireland, King Digital Entertainment PLC.8 This appears to have had no substantial operations. The address of the company is a lawyer’s office in Dublin which also houses several other companies.

King Digital Entertainment PLC is owned by a Dutch partnership, ABS Partners C.V.. This partnership is registered to an address in Bermuda, and is controlled by two partners, a general partner, ABS Partners I LLC, located in Delaware, and AB Holdings C.V., another Dutch partnership with a Bermudan address.

The accounts of King Digital Entertainment state that the records of the company are held in London, and several directors give addresses in London, which suggest that London is where the management of the company takes place.

King operates from a large office building in Soho, Ampersand House, where the company employs over 450 staff. Ampersand House is the home of a number of companies that are subsidiaries of King group, including midasplayer.com Limited, which describes its activities as providing “management services” to the King group. This would further confirm that the group is managed from Ampersand House in London.

Terms and Conditions of Candy Crush

Midasplayer.com Limited is a substantial operation, it earned revenues of $283m (£259m) in 2017 and made a profit before tax of $112 (£82), on which it paid taxes of $17.7m (£19m) (the company, although based in the UK states its accounts in US $). However, as described below, it does not make its money from customers, but from fees charged to other group companies for its management services.

King has further development studios in Sweden, Romania, Singapore, and Spain. It also has sales and marketing operations around the world.

When you download Candy Crush onto your phone outside of the US, the terms and conditions state that you are contracting with King.com Limited in Malta. Users inside the US are contracting with a Delaware LLC.

This would suggest that the revenues of the company are earned by these two subsidiaries.

The development companies, sales companies and head office in London act as contractors to other companies in the group, presumably King.com in Malta and the Delaware LLC.

As disclosed in the Activision Inc accounts in the US, the King group is currently under investigation for its transfer pricing structure by numerous tax authorities including the UK and Swedish tax authorities.

The transfer pricing issue is likely to be about whether the services provided by King group companies in the UK and Sweden were being adequately compensated by the revenue generating parts of the business. If they were underpaying for services, then this would depress revenues in these units and taxable profits in the UK and Sweden.

The transfer pricing issue is a long running issue and dates back to before the purchase of the King Group by Activision Blizzard Inc. Note 18 of the latest Activision Blizzard 10-K states that the company had assumed an uncertain tax position of $74m relating to transfer pricing matters. It states that it is in discussions regarding both its pre and post-acquisition transfer pricing structure.

In the 2015 accounts of the Irish holding company, the last year before the company transferred to Activision Blizzard, the company discloses that it is in discussions with various tax authorities about its transfer pricing position and estimates its “transfer pricing exposure” to have been $62.1m in 2015.9

The disclosure in the Activision Blizzard Inc 10-K confirms that the discussions are still ongoing and that the potential liability is still increasing.

In addition to the transfer pricing issue, the Activision Blizzard 10-K discloses that the Swedish tax authority has also landed King with a $400m tax bill concerning an “alleged intercompany asset transfer”. This is likely to concern transactions made when the company was sold to Activision Blizzard. Activision Blizzard state that they intend to vigorously contest the claim.

Conclusions and recommendations

Activision Blizzard has a highly complex corporate structure, which involves subsidiaries in Malta, the Netherlands, Ireland, Bermuda and Barbados. When analysing the money flows around these companies, it seems clear that these structures are designed to minimise taxation on the profits made by Activision Blizzard outside of the United States.

The company says it is now seeking to engage with tax authorities to see what the appropriate amount of profit and tax is in the countries where they operate. However, given that the company has told investors that it will “vigorously defend” large claims for back taxes being made by the Swedish and French tax authorities, it would suggest that what Activision sees as appropriate may not match the expectations of those working in various tax authorities.

Whatever new structures and policies the company may put in place in the future, their accounts demonstrate that up until now billions of dollars were moved into a company with an address in Bermuda which appear to be entirely untaxed. It is possible that if we were able to access the accounts of the company in Barbados and Malta, billions more going untaxed would also be revealed.

It seems that revenue authorities around the world are finally taking action over the tax avoidance activities of Activision Blizzard. However, the relatively small amounts of taxes being sought by the UK tax authority highlights the difficulties of administrative action. To end these practices will also require a more robust policy response.

The use of royalty payments to move billions in profits to offshore tax havens is common in the digital sector. The UK government has tried to introduce rules to deal with these schemes, however, these new rules are known to be ineffective because of the way in which a number of tax haven jurisdictions are exempt from them.

The case of Activision Blizzard is just another example demonstrating the need for governments to introduce more effective measures to deal with royalty-based tax avoidance schemes. In the UK this means changing legislation to make sure that royalty payments made to companies in jurisdictions where the UK has a tax treaty are included in the charge to income tax.

1The various tax issues are set out in Activision Blizzard’s 10-K form, available from the company’s website. https://investor.activision.com/annual-reports

2The licensing arrangement between the various Activision Blizzard companies are described in note 3 of the ATVI CV annual accounts 2017

3See Activision Blizzard UK “Business Review”, part of the Strategic Report to the 2015 Activision Blizzard annual accounts.

4HMRC Internal Manual, Limited Risk Distributor, available from https://www.gov.uk/hmrc-internal-manuals/international-manual/intm441080

5The Activision Blizzard 10-K form states that the UK comprises 12% of total revenues, compared against the stated revenues from the non-US parts of the business this makes up 25% of non-US revenue.

6The UK government has said it will not apply the charge to income tax on royalties to companies in jurisdictions with which the UK has a full tax treaty. In order to gain treaty benefits a company must be subject to taxation in that jurisdiction. The Dutch CV is a tax exempt entity in the Netherlands, so we assume the tax would apply to that entity.

7Juliette Garside, Who are the Candy Crush millionaires?, Guardian, 25 March 2014 https://www.theguardian.com/business/2014/mar/25/candy-crush-king-flotation-king-entertainment-shareholder-windfalls

8Prior to King’s floatation on the stockmarket, its holding company was in Malta. In order to facilitate the listing the company established a new holding company in Ireland. Details are on the company’s registration form at the Securities Exchange Commission website – https://www.sec.gov/Archives/edgar/data/1580732/000119312514056089/d564433df1.htm

9See note 10 of the 2015 annual report of King Digital Entertainment PLC


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