🎮 The Latin American gaming market continues to grow at an impressive rate. In 2022, more than 316 million players (with 200 million of those being active paying gamers) generated over USD 8 billion in revenue. A recent survey published by PagSeguro International shows that LatAm players purchase their games in a variety of platforms, ranging from Google Pay or the Apple Store all the way to marketplaces like Valve corporation’s Steam and G2A.COM. They also make in-game purchases on publisher websites such as Ubisoft, Garena and Riot Games (https://bit.ly/3Y0D86K).
Payments for software (including video game software) are relevant for domestic and cross-border taxation, to the point that both the OECD – OCDE and the United Nations Commentaries to their Model Tax Conventions discuss them in minute detail. Classifying these payments as “business profits” (Art. 7), “royalties” (Art. 12) or “other income” (Art. 21) can be irrelevant for the preservation of source taxing rights if the tax treaty in question follows the allocation rules of the OECD Model.
That said, what if you could:
1️⃣ isolate the image rights of an artist or a sportsperson in a nugget of video game content called “Downloadable Content” or DLC;
2️⃣ tie the performance of the character in the DLC and in the game to the location in which the game is played (especially – but not exclusively – if the game is played in a local tournament or by a professional player at a public event); and
3️⃣ use 1️⃣ and 2️⃣ to support the application of Art. 17 of the OECD or the UN Model to the cross-border payment so that it becomes taxable at source?
That was the exercise of Lucas de Lima Carvalho in his new article titled “Video Game Downloadable Content in Tax Treaties” and published this Monday on Tax Notes International. The author analyzes DLCs in the context of OECD and UN-based tax treaties and offers theoretical alternatives for the qualification of the payments for this type of content as “income derived by a resident of a Contracting State as an entertainer […] or as a sportsperson.”
The article is available (through a paywall) on the Tax Notes website: https://bit.ly/4etCK7v 💡 On a separate topic, if you are interested in learning more about the taxation of in-game transactions, here is a short list of recommended articles:
✅ “Assessing in-game taxes from a tax perspective”, by Anna (Anya) Vvedenskaya. Published by Wolters Kluwer International Tax Blog (2021). Available at: https://bit.ly/3Bz87iE
✅ “Tax Treaties and Real Income From a Virtual World”, by Lucas de Lima Carvalho. Published by Tax Notes (2021). Available at: https://bit.ly/4evFqlg
✅ “The crypto games and their taxation”, by Alfredo Collosa. Published by Centro Interamericano de Administraciones Tributarias – CIAT (2023). Available at: https://bit.ly/4dxtKwX
