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EU Commission "doubts" UK tax relief is necessary

EU Commission "doubts" UK tax relief is necessary

Tue 16 Apr 2013 1:53pm GMT / 9:53am EDT / 6:53am PDT
PoliticsDevelopment

Further delay as EU launches in-depth investigation with four major concerns

The European Commission is to open an in-depth investigation into proposed tax relief for UK games makers, suggesting there "is no obvious market failure" in the sector to warrant state aid.

"The market for developing video games is dynamic and commercially promising," said Joaquin Almunia, Commission VP. "It is not clear whether the taxpayer should be subsidising this activity. Such subsidies could even distort competition."

The move is a blow to UK trade bodies UKIE and TIGA which have both campaigned for tax relief for years. Such an investigation is likely to further delay any introduction of tax breaks, following a delay last month where the EU was unable to approve a required cultural test.

The UK intends to introduce a 25 per cent tax relief on a maximum of 80 per cent of the production budget of qualifying video games. However, based on the information is has available, the EU has said that it doubts whether:

  • Aid is necessary to stimulate the production of such video games.
  • Limiting expenditure for the tax relief to goods or services 'used or consumed' in the UK would not be discriminatory.
  • Offering this type of aid would not fuel a subsidy race between Member States.
  • The proposed cultural test ensures that the aid supports only games with cultural content without leading to undue distortions of competition.

TIGA's CEO Richard Wilson said another delay is a disappointment but once again pledged to support the case for tax relief in the UK, stating: "The EU Commission's decision to launch an investigation into the case for games tax relief is a very disappointing hold-up which if prolonged could jeopardise much needed investment and job creation in the UK's games industry.

"The UK games industry needs to surmount one final hurdle before games tax relief can be enacted: we must make a compelling, convincing and constructive case to the EU Commission of the merits of games tax relief."

"We are extremely disappointed that the European Commission has decided to open an in-depth investigation into production tax credits for the UK games industry," added UKIE's Jo Twist.

"We believe this support is crucial in opening up the opportunity for developers to make culturally British games, but also as a vital incentive for development studios and large multinationals to base their development in the UK and nurture the talent here. We are still confident of having the scheme."

14 Comments

Adam Campbell
Associate Producer

1,148 928 0.8
Oh dear...

Posted:A year ago

#1
Popular Comment
On the plus side, this may well be the one time that The Daily Mail will be on our side.

Posted:A year ago

#2

Ian Jarvis
artist

14 2 0.1
Why would we want to fuel a race to the bottom situation just like that which the VFX industry currently finds itself in. This is an industry making a lot of money and just like Hollywood it does not need and nor should be given subsidies.

Posted:A year ago

#3

Mazeltof
Conceptual Imagineer

8 7 0.9
"Offering this type of aid would not fuel a subsidy race between Member States."

This is the scenario in Canada now. BC has been cannibalized by new higher tax incentives in places like Ontario and Nova Scotia.

They're not wrong.

Posted:A year ago

#4

Paul Johnson
Managing Director / Lead code monkey

808 1,010 1.3
I'm truly shocked to hear this. No, really.

Posted:A year ago

#5
Well, we always knew the EU would find any opportunity to stick the oar in, as long as EU benefits first. The resultant news, was to be expected unfortunately

Posted:A year ago

#6

Yiannis Koumoutzelis
Founder & Creative Director

360 203 0.6
Indeed was to be expected. There are some deep politics involved i think. Not the better times between EU and UK.

Posted:A year ago

#7

Bruce Everiss
Marketing Consultant

1,692 594 0.4
The game industry, in an ideal world, should receive zero government aid. The state picking commercial winners has proven to be a policy for failure very many times.
However we are up against the problem of other states (mainly Canada) massively subsidising their gaming industries and thus distorting international competition. If I go to Linkedin and do a search for Codemasters with the country set as Canada it gives a long list of a substantial brain drain. We need to do something to counter this. It would be better for the UK if all that talent were paying their taxes in the country that educated them.

I don't see what the problems of the Commission are. Firstly the British film industry has had almost exactly the same government help for very many years. Secondly the French government has had a very similar scheme in place for a few years now for their game industry.

But this setback is not so great as it could be because firstly we now have very generous R&D tax credits introduced by this government and secondly because the actual rate of corporation tax has come down so sharply.

Posted:A year ago

#8

Rob Jessop
R&D Programmer

37 35 0.9
Minor correction Bruce; R&D Tax Credits were not introduced by the current government. Indeed in 2010 the then shadow chancellor announced that he intended to scrap them to fund a cut in corporation tax.

Posted:A year ago

#9
Politics, innit? There's no love lost between the UK and the EU at the minute.

It really is a tough one. Of course it's a race to the bottom - and it's a race that multinationals are exploiting to the full. In Quebec, it's Canadian taxpayer money, used to fund the creation of IP and profits that go abroad and, when the time comes, will no doubt be taken somewhere cheaper. And in the meantime the Quebec government will be squeezed to the full for what it can give - what government wants to be the ones held out to be responsible for the loss of thousands of jobs?

Someone from Canada - I can't remember who now, but I think it was on here a while back - put it perfectly when they said "what was meant to be a helping hand for studios in Quebec has become a permanent part of their business plans".

Posted:A year ago

#10

Bruce Everiss
Marketing Consultant

1,692 594 0.4

Posted:A year ago

#11
Looking at the canadian situation, i have a few friends who really enjoy it out there. Although recently its been quite tough in Montreal

Perhaps we can look at Games tax relief, similarly to quantative easing - to help kickstart the local game companies within the short and mid term period.

More significantly, I feel there are some measures to kickstart business without any tax relief

1/ If small game studios are allowed to have a relaxation of hiring/firing - this will do significantly far more because, the constant fear is the litigations/legal element for whatever reason. Especially related to sick pay benefit, maternity pay and replacement of staff

2/ Live PAYE : postphoned for 3 years for firms with < 50 people

3/ Easy access to technological hubs - fully services offices for startups

4/ Reduction of workers rights for part time and flexible working staff

Posted:A year ago

#12

Rob Jessop
R&D Programmer

37 35 0.9
Ah I see. The one mentioned in your report sounds like a new regime applied slightly differently; though I have to stress I'm no expert. I remember contributing to an application for R&D tax credits at a previous company in 2008, hence the confusion. The UK has had R&D tax credits for corporation tax, applied at different rates and with different rules since 2001 for SMEs and large organisations since 2003.
Information from HMRC.

Posted:A year ago

#13
Some countries (such as Belgium, where Fishing Cactus is located) do not have ANY incentives for creating games or in general for the Video Games Industry... However we are still there, up and running (it is thought but still). Tax reliefs are only there to maximize profits of greedy corporations but not really to create long term value/employment in the country. For example a good way of doing it would it be to provide subsidies/relief to smaller entities (<50 people) who create new jobs (in the same range as the relief). Would make sense to support the "be indie" trend and provide a variety of content and minds around the table.

Posted:A year ago

#14

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