TaxWatch: Activision Blizzard has dodged taxes on billions
UK think tank details how Call of Duty company's corporate structure, IP royalty scheme minimizes money owed
Investigative think tank TaxWatch UK has taken an interest in the gaming market lately. After releasing a report on Rockstar Games' lack of tax payments last month, the outfit has released a similar report on Activision Blizzard.
As with Rockstar Games, much of TaxWatch's criticism of the Call of Duty and World of Warcraft company focuses on where and how it declares its profit. While both Activision and Blizzard are headquartered in California, they have technically sold their IP rights to a company in Bermuda (ATVI C.V.) and one in Barbados (ATVI International SRL). Those companies then license that IP to a fourth part of the organization, Netherlands-based Activision Blizzard International B.V., which manages Activision and Blizzard distribution and rights outside of the US.
Activision Blizzard International B.V. is profitable, but not impressively so because so much of what it brings in is paid out in royalties to the Activision Blizzard outfits in tax havens, like ATVI C.V. The Bermuda-based outfit has no employees, but received €5 billion ($5.59 billion) in royalty payments between 2013 and 2017. In 2017, ATVI C.V. sold some of its intellectual property to the Barbados-based ATVI International SRL, information for which is not publicly available. TaxWatch notes that the UK government is rolling out a new tax on royalties derived from the UK that are paid out to tax havens; that tax will apply to royalties transferred to Bermuda, but not to Barbados as that country has a tax treaty with the UK.
In 2017, Activision Blizzard International BV reported pre-tax profits of €55.6 million ($62.18 million) compared to €1.3 billion ($1.45 billion) in royalty payments. As a result, it paid out just €7.2 million ($8.05 million) in taxes.
TaxWatch also looked at Activision Blizzard's subsidiary King, know for the Candy Crush series of mobile games. While it appears to be functionally headquartered in London, the British companies in the King corporate structure are only making money by charging management fees to the rest of the King companies. When players pay for in-game boosts, they are actually sending the money to a King business in Malta (for most of the world) or Delaware (for customers within the US).
This sort of behavior has not gone unnoticed by the countries Activision Blizzard operates in. TaxWatch notes that authorities in the UK and Sweden are investigating King's tax structure, with the latter already having issued King a $400 million tax bill for an "alleged intercompany asset transfer" that Activision Blizzard said it will "vigorously contest." Activision Blizzard has also said it will "vigorously contest" a $652 million demand from France's tax authority for practices at one of its French subsidiaries from 2011 to 2013. In the US, the IRS determined that the Bermuda-based ATVI C.V. should have paid more to the US Activision and Blizzard outfits for their IP rights, and a settlement resulted in the Bermuda operation paying an additional $1.4 billion to its US counterparts and $345 million more in taxes collected for the IRS.
"The use of royalty payments to move billions in profits to offshore tax havens is common in the digital sector," the report concluded. "The UK government has tried to introduce rules to deal with these schemes, however, these new rules are known to be ineffective because of the way in which a number of tax haven jurisdictions are exempt from them.
"The case of Activision Blizzard is just another example demonstrating the need for governments to introduce more effective measures to deal with royalty-based tax avoidance schemes. In the UK this means changing legislation to make sure that royalty payments made to companies in jurisdictions where the UK has a tax treaty are included in the charge to income tax."