Electronic Arts’ Best Game: Avoiding Taxes

When you contemplate the generous — some would say scandalous — tax breaks enjoyed by large companies, the benefiting brands you probably recall are multinational conglomerates like GE or “too big to fail” financial firms like Goldman Sachs.

But in addition to the kinds of brands that keep PR armies constantly marching in defense of their reputations, one sector that’s enjoyed extraordinary joy every April 15, according to the New York Times, is the gaming industry.

The Times focuses on Electronic Arts, which over the last five years paid $98 million in taxes – which sounds like a painful tax bill until you compute that if EA paid the full official US corporate tax rate of 35 percent, it would have shelled out $420 million on its $1.2 billion in profits.

Conspiracy theorists could claim that IRS agents are huge fans of EA’s Madden football game franchise, but the reality is that the company can take advantage of its three-headed brand identity: it’s a software-development brand, an entertainment brand, and an online retailing brand.

This sweet spot grants the EA a number of different tax breaks, based on a tax code established in 1954, originally intended to shore up national security. But as is the case of many an old law that seemed like a good idea at the time, that part of the code is probably in need of revision after 57 years. Unless a NASA reboot includes protection of a human colony on one of Saturn’s moons from a “necromorph” attack, it’s hard to argue that the development of Dead Space 2 can be classified as a national-defense innovation.

John Q. Taxpayer on the warpath against corporate tax dodging might be understandably outraged: the most recent Madden iteration sold 1.4 million copies during its first week. But if EA’s taxes are raised, it could simply move jobs up to Canada, whose provinces have offered competitive benefits to game companies including Ubisoft and…EA Canada.

The battle to update the tax code will likely continue long after every necromorph’s been vanquished from Titan, but don’t expect the news of EA’s tax benefits to hurt the brand’s image. GE didn’t seem to suffer when its own tax revelations went public, and EA’s customers are a lot more passionate about videogames than GE’s are about kitchen appliances. And many of them don’t even pay taxes themselves, anyway.

So perhaps there’s a lesson for brands trying to hold on more profits: even if you’re more likely to sell soft drinks than software, add videogame development to your plans. It sounds crazy, but stranger things have happened.