US Gaming Giant, Activision Blizzard Inc. – known for games such as World of Warcraft and Diablo – is and has been involved in several major transfer pricing disputes – with the US, French, UK, and Swedish tax authorities.
In a 10Q filing with the US Securities and Exchange Commission from November 2018 the following information was provided by the company on pending tax cases.
“Activision Blizzard’s 2009 through 2016 tax years remain open to examination by certain major taxing jurisdictions to which we are subject. During February 2018, the Company was notified by the IRS that its tax returns for 2012 through 2016 tax years will be subject to examination. In September 2018, the IRS concluded its examination of our 2009 through 2011 tax years. The Company also has several state and non-U.S. audits pending, including the French audit discussed below. In addition, as part of purchase price accounting for our 2016 acquisition of King, the Company assumed $74 million of uncertain tax positions primarily related to pre-acquisition transfer pricing matters. The Company is currently in negotiations with the tax authorities in the relevant jurisdictions, which include the UK and Sweden, with respect to King’s transfer pricing for both pre- and post-acquisition tax years.
While the outcome of these negotiations remains uncertain, they could result in an agreement that changes the allocation of profits and losses between these and other relevant jurisdictions or a failure to reach agreement that results in unilateral adjustments to the amount and timing of taxable income in the jurisdictions in which King operates.
On October 25, 2018, we received a proposal from the Swedish Tax Agency (“STA”) informing us of their intent to issue an audit assessment to a Swedish subsidiary of King [The company behind “Candy Crush”] for the 2016 tax year. The STA proposal described the basis for issuing a transfer pricing assessment of approximately 3.5kr billion (approximately $400 million) primarily concerning an alleged intercompany asset transfer. We disagree with the STA’s proposal and, if they proceed with issuing a formal tax assessment, intend to vigorously contest it. We would plan to pursue all remedies available to us to successfully resolve the matter, including administrative remedies with the STA, multilateral procedures with other relevant taxing jurisdictions, and, if necessary, judicial remedies. While we believe our tax provisions at September 30, 2018 are appropriate, until such time as this matter is ultimately resolved we could be subject to significant additional tax liabilities.
On December 28, 2017, we received a Notice of Reassessment from the French Tax Authority (“FTA”) related to transfer pricing concerning intercompany transactions involving one of our French subsidiaries for the 2011 through 2013 tax years. The total assessment, including penalties and interest, was approximately €571 million (approximately $660 million). We disagree with the proposed assessment and intend to vigorously contest it. We plan to pursue all remedies available to us to successfully resolve this matter, including administrative remedies with the FTA, and, if necessary, judicial remedies. While we believe our tax provisions at September 30, 2018 are appropriate, until such time as this matter is ultimately resolved we could be subject to significant additional tax liabilities. In addition to the risk of additional tax for years 2011 through 2013, if litigation regarding this matter were adversely determined and/or if the FTA were to seek adjustments of a similar nature for subsequent years, we could be subject to significant additional tax liabilities.
In addition, certain of our subsidiaries are under examination or investigation, or may be subject to examination or investigation, by tax authorities in various jurisdictions. These proceedings may lead to adjustments or proposed adjustments to our taxes or provisions for uncertain tax positions. Such proceedings may have a material adverse effect on the Company’s consolidated financial position, liquidity or results of operations in the period or periods in which the matters are resolved or in which appropriate tax provisions are taken into account in our financial statements. If we were to receive a materially adverse assessment from a taxing jurisdiction, we would plan to vigorously contest it and consider all of our options, including the pursuit of judicial remedies.”
Swedish news agencies are now reporting that the Swedish Tax Agency (Skatteverket) believes that taxes has not been paid on transfers of intellectual property rights to King’s software, collected data and game brands such as Candy Crush and Farm Heroes in connection with King being acquired by the Blizzard group in 2016.
The Tax Agency requires payments from King of SEK 3.6 billion – Di Digital (Finwire)
The Swedish Tax Agency requires payments related to the success of King’s Swedish company, Midasplayer AB, of SEK 3.6 billion. It is evident from documents that Di Digital has been given access to.
The amount relates to the sale of King to Activision Blizzard for SEK 47 billion in March 2016.
In connection with that transaction, intellectual property rights were transferred from the Swedish company, which the Swedish Tax Agency wants to tax.
“We believe that the rights have been transferred from the company in Sweden. We want to tax this transaction half of the value of intellectual property rights, ”says Roberth Glansberg, specialist in internal pricing at the Swedish Tax Agency.
The Swedish Tax Agency has previously demanded King more than half a billion kronor because it believed that the company hid profits attributable to Sweden in Malta.