As the bill for Video Games Tax Relief (VGTR) in the UK has risen to over £100 million per year, it has been revealed that large multinational companies have been cashing in on the scheme.
According to an investigation by The Guardian, companies like Sony, WarnerMedia, and Sega have claimed nearly half of all VGTR since the sceheme was launched.
US-based WarnerMedia, which owns British devs Rocksteady and Travellers Tales, has apparently claimed up to £60 million in tax relief.
Meanwhile, Japanese firms Sony and Sega have reportedly claimed almost £30 million and £20 million respectively for their UK-based operations.
VGTR was introduced in 2014, after years of campaigning spearheaded by industry trade association TIGA.
At the time, then chancellor of the exchequer George Osborne said: "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 [small and medium-sized enterprises].
"This relief is one of the most generous in the world and will help them to grow, creating new jobs for hardworking people."
Since then, TIGA figures suggest employment in the games sector has increased from nearly 10,000 to over 14,000 as of November 2018. Additionally, studio numbers have increased during the same time period from 620 to 812.
In order to be eligible for tax relief, a game must pass a points-based "cultural test." This includes critera like having European characters and locations, or being primarily developed in Europe. Under the system, it is entirely possible for a game like Batman: Arkham Knight to pass the test, despite lacking any obviously European cultural elements.
Although the test criteria has been approved by both the EU and the British government, the European Commission only agreed after concerns were abated that the scheme wouldn't be exploited.
In 2014 Joaquín Almunia, EU Commission vice president in charge of competition policy, said: "Our initial doubts have been dispelled. The proposed aid for video games is indeed focusing on a small number of distinctive, culturally British games which have increasing difficulties to find private financing."
Speaking with The Guardian, Alex Dunnagan -- a researcher with investigative think tank TaxWatch UK -- said the scheme had "become a cash cow for large, tax-dodging multinational corporations who are milking the system to extract hundreds of millions of pounds in subsidies from the British taxpayer."
TIGA CEO Dr Richard Wilson said the generous tax relief plan was primarily responsible for recent industry growth, and refuted the idea that VGTR was not intended to support large international companies making games in the UK.
"It would have been very limiting... if those large companies hadn't benefited as well, because they are all part of the same ecosystem," he told GamesIndustry.biz. "So I think it's right that they benefit"
He added: "If VGTR was cancelled or removed, it would be catastrophic to the UK games industry. It would take us back to square one, where we were competing on a very unlevel playing field. In fact, the situation would be worse now, because there are other EU countries looking into tax relief."
This report comes after it was revealed earlier this year that Rockstar has not paid any net corporation tax in the last ten years, and has unpaid claims approved for over £40 million in VGTR.