NYT: Video-game companies take lucrative advantage of US tax code, especially EA

If the United States tax code were cheese, it would be more Swiss than American -- tax breaks and incentives for software development, research and technological advancement were established to promote an intellectual advantage in the US, and video-game companies are in a unique position to take full advantage of federal funding, especially EA, The New York Times reports.

EA boasts $1.2 billion in global profits over the past five years -- which is technically a net loss, after deferred revenue, executive-stock-option deductions and other accounting necessities, including a payout of $98 million, cash, in taxes worldwide. The US federal tax rate on any company is 35 percent, but that's before the creative accounting.

In 2004, EA hired Glen Kohl, formerly an employee of the Treasury Department under President Clinton, to make the most of its tax incentivies. Kohl has since lobbied for federal tax breaks on domestic production and established offshore subsidiaries in low-tax countries. EA now has 50 offshore subsidiaries in countries such as Bermuda, Singapore and Mauritius, and holds $1.3 billion in offshore funds that won't be taxed unless brought into the US.

EA spokesman Jeff Brown justified EA's monetary exportation as a consequence of running an international business:

"E.A. is a global company with a majority of our customers and roughly 50 percent of our revenue generated outside of the United States," Brown said. "Naturally we hire, build facilities, copyright our trademarks, invest and pay taxes in countries outside of the U.S." We didn't realize Mauritius had such a robust video-game community.

EA's software development costs, including developer salaries, totaled $6 billion in the past five years, a majority of which it was able to deduct immediately. EA credited tens of millions in research and development tax breaks alone during the past five years.

In 2004, Congress passed a tax deduction for companies that export, but didn't specifically mention video-game companies. In 2005 EA paid a Washington lobbying firm $60,000 to convince the Treasury Department to add video-game companies and their revenue earned from online subscriptions to the bill. In 2010 this deduction accounted for 9 percent of EA's production costs.

Canada is recruiting game developers, in 2008 offering Ubisoft more than $321,000 for each job relocated from the US. In Montreal, all video-game companies receive a tax credit equal to 37.5 percent of their payrolls, and of its 7,600 employees, EA has 750 in Montreal and plans to hire more there.

Brown said not taking advantage of US tax breaks would be like a customer "insisting on paying full price during a store sale." And we know how EA hates anyone who pays full price.

This article was originally published on Joystiq.