European Commission doubts need for UK games tax relief

The European Commission (EC) has cast doubt over whether it will sanction the long-awaited video game tax relief in the UK, with a further delay to its introduction seemingly the best case scenario. UK Chancellor George Osborne announced plans for a 25 percent game development tax break during his 2012 Budget report, though the enactment of the policy was held up pending EC approval of the cultural test that will determine which projects qualify.

But the EC has now opened “an in-depth investigation” into the proposed UK games tax relief amid doubts that the state aid is necessary. “The objective of the measure is to provide an incentive to video games developers to produce games meeting certain cultural criteria,” the EC said. “However, the Commission considers that there is no obvious market failure in this dynamic and growing sector and that such games are produced even without state aid. Consequently, at this stage, the Commission doubts that the aid is necessary.”

Joaquín Almunia, EC vice president for competition policy, stated: "The market for developing video games is dynamic and commercially promising. It is not clear whether the taxpayer should be subsidising this activity. Such subsidies could even distort competition."

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The association for UK Interactive Entertainment (UKIE) expressed disappointment with the EC announcement, but suggested the latest hurdle to implementing tax breaks wasn’t entirely unexpected. UKIE said: “This is common practice throughout the rest of the EU, and the film industry was subject to a full investigation when the plans for their tax credits were first submitted to the Commission."

UKIE CEO Jo Twist said the UK Government “remain 100 per cent committed to the introduction of tax relief, adding: “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. 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 introduced and are fully committed to having it in place as soon as possible. A similar investigation into the French games tax relief system was successful but this took 12 months to conclude.”