Sometimes when you look at the financial reports of game companies, you will always find a strange thing, that is, their works seem to be very popular. However, after squeezing the head and tail, there was no money at all, and even a loss. It is easy for us to contact the high operating and sales costs, but there is also a common situation that shows that the company may be deliberate behind it.
For example, between 2009 and 2014, 5.9 billion euros of Activision Blizzard’s game sales revenue outside of the United States went into the pockets of Activision Blizzard International BV, even after deducting sales costs and various excessive taxes , At least there is a surplus of more than 4 billion euros, but their profits in the past few years are only 63 million euros. The remaining money has evaporated?
Another weird data comes from the Rocksteady studio of Warner Bros. The reputation and sales of its “Batman” series are very good, especially “Batman: Arkham Knight”, which sold 5 million copies within three months after its release. But from 2014 to 2017, the company had a pre-tax loss every year-from the annual accounts, Rocksteady did not get a penny from the game profits, but got paid from the parent company based on the total production cost. The remuneration given by the parent company is simply not enough, and the loss is logical.
These weird operations ultimately point to one goal: to squeeze the wool of various governments to obtain more benefits. In short, it is “tax evasion.”
Activision Blizzard’s tax haven
If you want to go back to the source, Activision Blizzard’s 4 billion euros may have come to a basement in Rotterdam, the Netherlands… Suppose someone bought a CD of “Call of Duty” in Germany. Logically, the money will eventually flow into Activision Blizzard. Headquartered in California, USA. However, in 2009, they transferred the intellectual property to their Dutch base ATVI CV.
This means that the surplus of more than 4 billion euros from the sales of games mentioned above has to be paid to ATVI CV as copyright fees. The parent company has no profits, and naturally it does not have to pay taxes to the US government. On the other hand, although ATVI CV needs to pay some transaction taxes in the Netherlands, the Netherlands is extremely tolerant to multinational companies and has a lot of room for maneuverability, making the average tax rate in this area 5%, compared with the US tax rate as high as 35% .
There are approximately 15,000 tax experts in the southern business district of Amsterdam, many of whom make a living by helping large companies settle their tax relationships. For example, let the Dutch Revenue Service think that ATVI CV owes taxes in the United States, and the US Internal Revenue Service thinks that ATVI CV owes taxes in the Netherlands, and the final result is that neither of them have to pay.
So a funny thing happened. ATVI CV, a shell company with zero employees and managers all living in Hamilton, Bermuda, actually received about 4.3 billion euros in royalties and 2.3 billion euros in profits from 2009 to 2014.
This process of Activision Blizzard is actually a variant of the “Double Irish with Dutch sandwich” method, which Google and Apple have often used in the past. To put it simply, both Ireland and the Netherlands stipulate that transactions between companies in EU member states are exempt from income tax. Using the form of “payment of copyright fees”, capitalists can remit product sales income to companies registered in the management center in Bermuda. Get a tax-free savings.
Well, Activision Blizzard now has a huge amount of overseas tax-free savings, but once the money is transferred to the United States, 35% will be deducted. Isn’t it useless? So in November 2015, they spent US$5.9 billion on the spot to acquire King Digital Entertainment, a casual social gaming company based in Europe, and bought the influential IP “Candy Crush Saga” homeopathy.
Of the $5.9 billion in expenditure, half came from ATVI CV’s account. This transaction even won the Annual Tax Transaction Award from the International Tax Review, an analyst from Bloomberg Technology Full of praise for it.
The “Double Irish Sandwich” structure has long attracted the attention of governments of various countries because it is too famous. A series of policies to fill loopholes have been introduced, making it lose its operational space at the end of 2020, but Activision Blizzard obviously has more than this trick.
In 2018, the French Tax Agency issued a fine of US$652 million to them, claiming that they had carried out a “pricing transfer”. The operation method is as follows: Assuming that the tax is high in the location of parent company A and the tax in the location of subsidiary B is low, then after A buys B’s raw materials at a very high price, A’s profit is reduced, and the tax to be paid is also reduced. In the end, the money went to his own B, and B’s tax was also low, a win-win situation.
In short, according to the data provided by financial analyst Chris Vickery, through various methods, the effective tax rate of Activision Blizzard in 2018 is -51%, which is equivalent to the American people inverting them for $228 million. It can only be said that Bobby Kotick The routine is deep.
After seeing so many weird tricks, you may also be curious about Rocksteady Studio’s years of losses.
It is not difficult to see from the above figure that between 2014 and 2017, Rocksteady’s profit before tax (Profit before Tax) was a total of -5.212 million pounds. But they inexplicably got a “Video Games Tax Relief” (Video Games Tax Relief, hereinafter referred to as VGTR) income of 9.979 million pounds, and then 10.134 million pounds of tax did not pay, but in the end they made a profit of 4.922 million pounds.
As you might have guessed, Warner Bros. deliberately made its subsidiaries lose money, and what they gathered was British VGTR wool. This policy allows eligible British developers to apply for a 25% tax credit from all eligible expenditures. If there is a loss in the game, you can apply for a cash credit to the UK Revenue and Customs Administration. As a result, Rocksteady not only received relief, but also had to pay zero corporate tax due to losses.
Warner Bros., of course, is not the only thing doing this. A survey conducted by The Guardian in 2019 found that in addition to Warner Bros.’s application for a corporate income tax reduction of 60 million pounds, Sony also obtained 30 million pounds. Sega’s audit results of Creative Assembly, a developer of its British subsidiary “Total War” series, also showed that their application amount reached 20 million pounds.
Although Creative Assembly is not as thorough as Rocksteady, from the 2015~2018 revenue and expenditure statistics, they did profit from the VGTR. During the period, they received a total of 10.677 million pounds in tax relief, making the company’s business in 2018 The profit margin reached 18%, much higher than the 5.5% operating profit margin of Japanese parent company Sega.
Let’s take a look at Rockstar North, the famous “Grand Theft Auto V” developer. The revenue and expenditure records are also a bit strange. Between 2013 and 2018, its total pre-tax profit was only 47.3 million pounds. However, according to estimates by the British charity TaxWatch (Tax Watch), the operating profit of Rockstar’s games released during the same period was around 5 billion US dollars, which is simply not the same.
It stands to reason that “Grand Theft Auto V” has attracted a lot of money during this period. After all, it has brought Take-Two $800 million in revenue within 24 hours of release. In less than a year, the game’s sales reached $3 billion, and by May 2019 it sold more than 110 million copies.
In fact, Rockstar North also used the form of low profits to pay less tax, and applied for tax relief in the UK by the way. Through VGTR, they received £42 million in subsidies from UK taxpayers between 2016 and 2018.
More than that, a horizontal comparison of Take-Two’s seven subsidiaries in the UK shows that the total profit in the past ten years from 2009 to 2018 was only 108 million pounds. Most of the money made from game sales, many of them flowed into the senior In the personal account of the manager. Although the company’s books are very unsightly, they all benefit from the British government.
The game tax relief in the UK was originally a good intention to help the local cultural industry, especially small and medium-sized developers who have no money. Some independent developers also said that “this is their guarantee of sustainability.” For example, Triangular Pixels, which has only four employees, used the money to add Cornish (a Celtic language family) to the game. It is definitely a “cultural” contribution.
The problem is that the review threshold for applying for relief is too low. Although it is clearly required that the game can “promote British culture”, “Grand Theft Auto V”, which is based on Los Angeles, can also pass the trial, and the protagonist is not British. The only part of this series with a British background, I am afraid there is only the DLC of “Grand Theft Auto 2”, but the official agency believes that it has outstanding performance in cultural diversity.
When the plan was drawn up in 2013, the European Commission (European Commission) expected VGTR to focus on “a few unique games with British culture, which are increasingly difficult to obtain private financing.” At that time, some people suggested that a large number of additional tax avoidance opportunities should not be created. Unexpectedly, small and medium-sized developers ended up getting very little money.
In a survey, more than half of the games with an application amount of less than £50,000 accounted for more than half of the total tax deductions of 324 million pounds, and only about 10 million pounds of it were obtained. What about the remaining 313 million? Of course they were all taken away by multinational companies like Sony, Warner, and Take-Two.
Looking back, in fact, American game companies such as Activision Blizzard used loopholes to evade taxes in the early years. The US tax agency IRS is not unaware. They have been urging Congress to legislate, but the motivation of the state members is not strong-even if the tax rate of large companies is low, they are still big taxpayers. The so-called “do not keep your master here”, it’s dead, let’s change place. It may have an impact on the state economy.
But since 2017, Trump has been plotting to recover the untaxed profits of $2.6 trillion hidden in overseas tax havens. Judging from the financial report of Activision Blizzard in the fourth quarter of 2017, their net profit was -580 million, which was mainly affected by the US tax reform and paid a one-time income tax of 700 million US dollars. As for the VGTR in the UK, it is a problem that has not been resolved since 2016. To put it in jokes, maybe Rockstar is getting better, and British talents have the opportunity to buy a few more GTA…
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