Scottish video game studio Rockstar North and its parent company Rockstar Games have been accused of gaming the tax system after paying nothing in corporation tax between 2009 and 2018, despite claiming millions in video games tax relief.
Rockstar North is the development studio behind the blockbuster Grand Theft Auto (GTA) series. The studio is a subsidiary of Rockstar Games, an American video game publisher, itself a subsidiary of Take-Two Interactive, a US-listed multinational company.
GTA V, the latest game in the series, is the best-selling entertainment product in history, across any medium. GTA has now sold 110 million copies and generated over $6bn in revenue since its initial release in 2013.
But despite this success, the studio managed to avoid paying a penny in corporation tax while claiming £42m in subsidies through the Video Games Tax Relief (VGTR) regime. This amount is equivalent to 19% of the £227m the UK government has granted, in total, since VGTR was introduced.
One thing for eagle-eyed accounting professionals to note: the bulk of the VGTR amount is listed on page 17 of Rockstar North’s 2018’s accounts as an accrual. They have HMRC down as a debtor, indicating that they expect to receive the full amount.
At the centre of Rockstar North’s VGTR claim is its golden goose: GTA V. To claim VGTR, a game must be certified as “culturally British” under a test administered on behalf of the Department for Digital, Culture, Media & Sport by the British Film Institute (BFI).
This BFI certification sets a number of criteria. As the government explained in 2014, “[Games] must achieve a level of points which they are awarded based on their cultural content, cultural contribution and the location of the game’s development and nationalities of key personnel working on the project.”
Undoubtedly, the GTA V has attained an enormous cultural resonance, but its culturally British bona fides are open for debate. While Rockstar North is based in Edinburgh, the game itself is undoubtedly of a US persuasion.
The game, set in a fictionalised version of Southern California called San Andreas, is a crime story. The player switches between three protagonists and has total freedom to roam the expansive open world engaging in and completing missions.
Controversially, this freedom includes the ability to commit crimes, up to and including murder. Fundamentally, however, GTA’s nihilism and dark humour are considered by many to be a razor-sharp satire of American society and the American Dream.
But no matter what your perspective on GTA V’s cultural value is, its status as culturally British is another matter altogether. None of the game’s three protagonists are British, either. And yet, despite the game’s singularly American characteristics, it still managed to surpass the BFI’s points threshold for VGTR.
Chris Dowsett, a VGTR specialist with Myriad Associates, told AccountingWEB that the certification process is a points system. “To get your game classed as British, you have to get 16 out of 31 possible points,” Dowsett explained.
The test has four sections:
Section A looks at content of the game like the characters, locations, who created the game, and the language the game was originally written in
Section B focuses on cultural heritage and diversity
Section C focuses on where the work took place
Section D asks who undertook the work?
“Rockstar North would’ve been able to get points in section A due to the language it was written in and who created the game, as it is developed in the UK,” explained Dowsett.
Games that are approved can claim 20% of the core expenditure, excluding conception, advertising, promotional costs and a few other additional outlays.
The curious case of Rockstar North’s profits
According to George Turner, director of Taxwatch UK, the think tank whose report originally brought the issue to public prominence, the bigger mystery is Rockstar North’s profits, or lack thereof, considering GTA V’s enormous commercial payload.
The game studio’s profits have been hoovered up by its parent company with very little actually allocated back to it. “Whether that’s right or wrong is an interesting question,” said Turner. “But it seems bizarre to me that Rockstar North could be behind the most popular entertainment product in history but isn’t allocated much profit.”
There can be little debate that Rockstar North is indeed the driving force behind GTA V. The game’s ‘culturally British’ distinction which allows Rockstar North to claim VGTR is predicated on the game being made in the UK.
Take-Two Interactive seems to disagree with the government’s assessment of Rockstar North’s integral importance to GTA V’s development, allocating the bulk of the game’s profits to its own bottom line.
“It’s a strange inversion of the argument usually presented by companies like Apple, which argues that the IP of their products is allocated in the US, so it’s right that it’s taxes aren’t owed in other jurisdictions,” said Turner.
“The argument is similar for GTA V. Its value is created in the UK, the bulk of the production is happening in the UK. It’s certainly not 'culturally British' because its set in the UK.”