A fantastic article over at the New York Times shows that large game publishing corporations like EA probably aren’t paying their full share of US federal taxes. The article specifically targets EA stating that they’ve pulled down over $1.2 billion in global profits for the past five years and paid around $98 million in taxes, worldwide!
That’s about 3.17% when the federal corporate tax percentage in the US is 35%. How is that possible? Deferred earnings, revenue in offshore subsidiaries that end up paying a far lower tax rate than in America and more.
Here’s a quote from the article:
All told, the federal government gave $123 billion in tax incentives to corporations in 2010, according to the Joint Committee on Taxation, with breaks for groups and people as diverse as Nascar track owners, mohair producers, hedge fund managers, chicken farmers, automakers and oil companies.
Many tax policy analysts say the breaks for the video game industry — whose domestic sales of $15 billion a year now exceed those of the music business — are a vivid example of a tax system that defies common sense. Most times, subsidies begin as a way to nurture a fledgling industry that will not be profitable for years or to encourage a business activity deemed to have a broad benefit to society, like reducing pollution or improving public health.
During tax lawyer Glen A. Kohl’s seven years at the company, Electronic Arts also became more aggressive about assigning its intellectual property offshore, a move that often reduces a company’s tax bill.
During the last five years, Electronic Arts has claimed tens of millions in tax savings from research and development credits for its various games, according to the company’s regulatory filings. (Company officials declined to specify how much of that total came from the federal government.)
The problem for the government is mainly competition for jobs because some countries, like Canada are beginning to offer more and more tax breaks and games companies have begun to move some jobs there, taking them away from America (Ontario Funding Almost 33% of New Ubisoft Toronto Studio) and relocating them. That then adds to the unemployment rate while increasing the company’s profits and decreasing its net tax liability. It is certainly a slippery slope that needs to be tread carefully upon if the government is to right its sinking ship while still retaining the needed jobs for its citizens. US-based companies seem to have no problem not paying their fair share on one hand while then complaining about the economy and the taxes that they do pay on the other.
Yet, when the country is facing an ever-increasing debt of around $14 trillion dollars, can it afford to continue giving these types of tax breaks?
To read the full article see Rich Tax Breaks Bolster Makers of Video Games