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Tax hurdles that video game and streaming professionals need to address

eGamers and streaming media should pay attention to the tax impact of their video game business, which is usually unclear.

This article was drafted by my tax partner at DLA Piper [and obsessed video game players], Alessandro Martinelli, For the taxation of professional video game players and streamers.

Video game professionals often ignore tax barriers

The tax regime that applies to the "new" Italian online entertainment and video game professionals [so-called eGamers and streamers] is generally treated superficially. This happens, on the one hand, due to a lack of expert knowledge in this young and rapidly changing market, on the other hand, because they are not familiar with video and TV streaming, they are not familiar with the administrative and bureaucratic tax transition from hobby to professional activities. every aspect.

Live streamers and eGamers use different platforms [such as Twitch, YouTube or the newer Mixer, which is a Microsoft platform that will stop its activities and begin to establish a partnership with Facebook Gaming], using their games and communication skills to create virtual communities. These platforms are organized and monitored by moderators, and allow users to track the live broadcasts of their favorite video game players [their real companions at the time, especially now, real-time companions who are in the Covid-19 lock-in phase], interact with them, and exchange opinions, real time. It is estimated that the ten most well-known online video game players [Including "ninjas" with an annual turnover of 15 million US dollars], the total annual revenue is about 120 million U.S. dollars, which is a very high number for a fast-growing business.

Streaming video game activities can generate economic income in different ways. From the beginning, streaming media activities were encouraged by the same platform through different partnership/association methods, depending on the number of users connected in real time or other variables. Let us see how.

Different sources of income for video game players

The reward plan requires affiliation with relevant media platforms. For example, Twitch allows a video game player with 50 followers to access a program through which he/she can [i] switch to a paid subscription to the channel [the platform can ensure that "gold" users have greater visibility] , [Ii] Enable "bit", a virtual exchange currency through which users can exchange other players and support them financially, or [iii] allow direct sales of games from channels [for example, the title of the game played] Or any additional content for "real-time" promotion]-related to broadcast media].

In addition, the reward program generates income that benefits all participants. Streaming media will receive [i] part of the subscription price, or [ii] the "bits" users use on their channel, and [iii] a certain percentage of the sales price of video games. In addition, the platform will generate revenue from [i] subscription sales, [ii] "bit" sales, and [iii] distributed games. In addition, the best performing streamers will be able to access advanced "partner" programs through which they can gain greater visibility to stimulate and customize sales.

In addition, eGamers can obtain additional benefits through sponsorship [for example, the traditional slogan on the channel is usually related to the hardware brand used, but also related to the direct consumption of goods and services during the live broadcast]. In addition, they can also generate income through cash rewards for participating in e-sports activities [on-site and/or online] and voluntary incentive mechanisms [external platforms] that allow users [no matter what channel they subscribe to] to make cash donations. This controversial form of compensation will be discussed below.

The tax impact of different sources of income in the video game market on video game players

This different form of compensation may tax Italian streamers and eGamers. According to the Italian tax law, for income tax purposes, anyone who has a usual place of residence or an important center of interest in Italy for more than 182 days a year, regardless of where the income is generated, should pay taxes in Italy.

In addition, it is necessary to point out the nature of the performance performed by the streamer to describe his/her tax situation. In fact, streamers and eGamers can provide activities "occasionally" or "habitually" [ie professionally]. Generally, for income tax purposes [so-called "IRPEF"], occasional services refer to occasional activities with the same customer for no more than 30 days per year. In this case, and only in this case, it is possible to avoid opening the VAT number and start actual professional activities. In this case, if the annual salary is less than 4,800 euros, streamers and gamers may not submit tax returns. However, if the customer is a company, a 20% withholding tax must always be applied.

This tax system is difficult to apply. Indeed, even if the limit of 4,800 euros is adhered to to the maximum extent, there are still problems related to the continuity of performance [ie "customary"]. Indeed, it is worth noting that although the first income is not of substantial significance, it comes from a stable relationship with the platform [this will reduce the subscription and/or purchase of some users on the channel], which may lead to the effect of Continuity. In addition, sponsorship [strictly related to the use of the platform] and remuneration from participation to professional e-sports activities [even by chance] are usually carried out at the advanced level, that is, when streamer is well known in the network [because of his /Her "live" exists or spreads his/her name]. All of these factors may indicate the continuity of the performance and may have a negative impact on occasional and non-professional ribbon performances. Therefore, these factors may make it necessary to open ad hoc VAT [and taxation] positions to be able to declare all professional income and fulfill all tax obligations.

Uncertain handling of donations from video game players from the perspective of taxation

It is necessary to discuss the issue of long-term donations received. In particular, in terms of streaming media, donations can account for a considerable amount of income. According to Italian regulations, donations must not constitute a counter-performance by the payee, that is, they must be eligible as gifts. In streaming media channels, such funds can be donated free of charge, and there is no obligation in terms of quantity or gains from the transfer. Therefore, they appear to be true direct donations, for the purpose of IRPEF in Italy, and are not included in the formation of income.

However, future donations in streaming media channels may cause controversy. In fact, on the one hand, donations will not generate taxable income for the recipients, but, on the other hand, the Italian Tax Agency may attract several low-value donations transferred through streaming channels, which may result in possible tax revenue A lot of money deducted. As a result, they may be subject to administrative penalties and criminal penalties if they exceed certain thresholds.

The boundary between donations [Peddling court], while in the world of streaming media, counterproductive payments are blurred. In fact, for example, although it is not mandatory, platform users “donate” in Fortnite games to follow the amount of a particular player, although it is not mandatory, it may be another qualification for entertainment payments. In this case, the Italian Tax Agency may try to retrain these funds as professional income, which will have the aforementioned [unpleasant] consequences.

To understand some other legal issues in the video game market, I recommend reading the DLA Piper E-Sports World Law.

Picture Credit Glenn Batuyong

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