Rockstar North, the Edinburgh-based developer of Grand Theft Auto, has paid no corporation tax over the past 10 years, despite making billions in revenue for its parent company Take-Two Interactive, while claiming more than £42m in tax relief.

A report from the investigative thinktank TaxWatch UK estimates Rockstar Games’ operating profit at $5bn (£4bn) between 2013 and 2019, during which time the company released Grand Theft Auto V (GTA V) and Red Dead Redemption 2. Rockstar North is part of Rockstar Games.

GTA V has sold more than 100m copies, making it one of the most profitable entertainment products of all time. It racked up £1bn in its first three days on sale in 2013. According to Take-Two earnings reports, GTA V’s online component, GTA Online, has generated hundreds of millions in revenue.

But the company paid no corporation tax between 2009 and 2018. It received £42m in tax credits from the government’s video games tax relief scheme, which was set up in 2014 to bolster the UK’s £5bn games industry, much of which is made up of small and medium-sized developers. The sum is equivalent to 19% of the total relief paid to the entire UK games industry since 2014, TaxWatch reports.

To qualify for the tax relief scheme, games under development must pass a cultural test administered by the British Film Institute that establishes a significant contribution to British culture. To qualify, games must score at least 16 out of a possible 31 points attributed for British settings, characters and development, and promoting cultural diversity. GTA V, a satirical game set in a fictionalised California, qualified in 2015.

Rockstar Games, which has studios based in India, Canada and the US as well as the UK, is owned by Take-Two Interactive, a multinational video game publishing company that also owns 2K Games, publisher of the NBA, Civilization and Borderlands video game series. Take-Two has a market value of $13.1bn. Senior staff at Rockstar Games split a bonus pool of up to $3.4bn in 2009-19.

The TaxWatch report calls the situation “absurd” and raises questions over Rockstar Games and Take-Two’s allocation of profit and the proper application of video games tax relief.

“Take-Two appears to believe that it is reasonable that close to 100% of the profit should flow to their US-based parent companies and senior management, while almost no profit flows back to the UK companies involved in either making or selling the game,” the report says.

George Turner, the director of TaxWatch, said: “It is outrageous that the UK taxpayer is being asked to shell out tens of millions of pounds in subsidy to the developers of Grand Theft Auto, when at the time that the game’s developers put in their tax credit application Grand Theft Auto V had already generated several billion dollars in sales and profits. This is a drive-by assault on the British taxpayer and corporate welfare scrounging at its very worst.”

TaxWatch concludes that the UK government should urgently examine the allocation of tax relief for the games industry, though it also states that Rockstar and Take-Two’s allocation of profits is entirely legal.

“There is no evidence that HMRC has challenged this set-up or that Take-Two or any of the individuals named in this report has acted illegally,” it said.

Rockstar North did not respond to requests for comment.