Hi, and welcome back to Legal Geek. This week, we cover an investigative report recently released that indicates Rockstar North, the maker of the Grand Theft Auto video game series, has paid no tax in their home country for 10+ years.
An investigative nonprofit called Tax Watch UK revealed 2 weeks ago that Rockstar has received over 52 million dollars of tax credits over the past three years. Furthermore, this report indicated that Rockstar has not paid UK tax for 10 or more years running. This is interesting because the company is based in Scotland and normally would be a tax boon for the UK.
Especially when you consider that the estimated operating profit of the company is about $5 billion dollars in the same time period, it begs the question, where did all the taxes go? Perhaps this is a real life case of grand theft, but tax evasion instead of auto carjacking.
Rockstar does operate as a subsidiary of Take-Two Interactive, a U.S. company. Take-Two believes it is reasonable to push all profits from intellectual properties developed in foreign subsidiaries into the U.S. parent company, thereby allocating these profits to be taxed under U.S. law. These are done by an internal accounting process called internal royalties, which are paid to selected employees of the U.S. parent company to allow them to allegedly participate in the success of the software titles they help develop. However, participation really just means moving all the profits to a tax-friendly jurisdiction, probably. Take-Two has a history of this even with respect to US taxes, having used Bermuda to isolate profits from significant taxation in the 2000s.
The primary problem is that the grant of the tax credits to the Rockstar UK company are for the purposes of boosting growth and profits within the country so as to also increase the overall prosperity and tax base collectible from businesses in the country's economy. So this nonprofit watch group is asking for a review of future tax credits based on this possible violation of so-called arms length principles that govern when multi-national companies can move profits between jurisdictions.
Generally speaking, arms length principles would not allow for what Rockstar and Take-Two are doing here because the IP is being made in Scotland and the marketing of the product and sales are also in Scotland. There's nothing criminal about the practice, but the tax benefits may be withdrawn if Take-Two continues to funnel all profits away from Rockstar's home country.
Especially when you consider that the estimated operating profit of the company is about $5 billion dollars in the same time period, it begs the question, where did all the taxes go? Perhaps this is a real life case of grand theft, but tax evasion instead of auto carjacking.
Rockstar does operate as a subsidiary of Take-Two Interactive, a U.S. company. Take-Two believes it is reasonable to push all profits from intellectual properties developed in foreign subsidiaries into the U.S. parent company, thereby allocating these profits to be taxed under U.S. law. These are done by an internal accounting process called internal royalties, which are paid to selected employees of the U.S. parent company to allow them to allegedly participate in the success of the software titles they help develop. However, participation really just means moving all the profits to a tax-friendly jurisdiction, probably. Take-Two has a history of this even with respect to US taxes, having used Bermuda to isolate profits from significant taxation in the 2000s.
The primary problem is that the grant of the tax credits to the Rockstar UK company are for the purposes of boosting growth and profits within the country so as to also increase the overall prosperity and tax base collectible from businesses in the country's economy. So this nonprofit watch group is asking for a review of future tax credits based on this possible violation of so-called arms length principles that govern when multi-national companies can move profits between jurisdictions.
Generally speaking, arms length principles would not allow for what Rockstar and Take-Two are doing here because the IP is being made in Scotland and the marketing of the product and sales are also in Scotland. There's nothing criminal about the practice, but the tax benefits may be withdrawn if Take-Two continues to funnel all profits away from Rockstar's home country.
The Bottom Line is: large multinational companies are just like individuals in that we all try our best to pay as little tax as possible. That leads to stories like this where a home country does not receive any significant taxes sometimes for a decade or more, despite the wild success of a game maker like Rockstar with the GTA series. International tax evasion may just be a good theme for the next GTA game as well.
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