Game publishers exploit ‘culturally British’ loophole, dodge millions in UK taxes

A report from The Guardian reveals that a British tax relief fun has paid the vast majority of its funds — which were originally intended to be earmarked for smaller developers based in the UK — to global game publishers such as Sony, Sega, and Warner.

Specifically, the report reveals that these companies have used this tax loophole to avoid paying tens of millions of pounds in taxes. Video Game Tax Relief (VGTR) allows game publishers to claim back up to 20 percent of some production costs. Each individual claim can amount up to £500,000, and the companies in question have, since VGTR has existed, claimed £20 million (Sega), £30 million (Sony), and £60 million (Warner) in tax breaks. According to The Guardian, the £500k claims are a small fraction of the total number made, and yet they account for 80 percent of the total tax relief — and almost all of those claims are made by big game publishers.

This is not an uncommon industry practice — in fact, this is the second time this year a major game company has reportedly used VGTR to get a tax break. The first one (or rather, the first to be reported on) was Rockstar. And several major game developers and publishers maintain branches in England and Ireland, so they do contribute to the industry’s economy over there in a material way.

Still, it’s a bit galling as VGTR was apparently approved by the European Commission under the presumption it would benefit “a small number of distinctive, culturally British games which have increasing difficulties to find private financing.” The Commission even investigated it to determine that specific fact.

To claim VGTR, companies even have to take a test to prove that their game is either overwhelmingly culturally European or was made primarily in Europe. I scoffed at that notion when I heard that Rockstar was doing it, given that every Rockstar game is somehow a satire of the American Dream. But since lots of these studios put work through their UK branches, they can scoot by on a technicality.

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As much of an open secret as it is in the industry, it’s still kind of amusing to hear that the vast majority of games getting a “culturally British” tax break are some of the least British I’ve ever heard of.