A four-page expose put together by GameIndustry.biz reveals that ELSPA — the trade group representing the interactive entertainment industry in the UK — may have quietly been working against tax breaks. While it sounds like a nefarious, under-handed scenario – and one that may have inadvertently sent a mixed signal to the government at the time – the group had its reasons.
While the industry continually lobbied the government last year to provide tax breaks and other business support, ELSPA aired a number of concerns it had with the government over "cultural tax breaks." ELSPA apparently warned the government against such tax breaks, instead urging them to offer the industry ‘software’ tax breaks.
The difference between the two is vast:
"Currently videogames are classed as ‘software’ under World Trade Organisation rules, and as such enjoy the benefit of free trade status," wrote ELSPA in its DCMS submission. "Cultural products on the other hand, are afforded a protected status, that allows countries to apply trading restrictions to protect their own locally cultural products and therefore to restrict free trade.
"Any change to the classification of videogames could seriously affect the commercial development of the industry and its long-term future. Currently, videogames are not affected by the imposition of retail levies, output quotas and the like which are applied to cultural industries (such as the French and Spanish film industries) in order to fund the tax relief schemes.
"Our concern is that the provision of a tax relief scheme on cultural grounds could label the industry’s products, in the EC’s view, once and for all as cultural, and that this could be an irreversible first step towards the imposition of retail levies or further protectionist regulation aimed at sourcing funding to support the tax relief scheme.
"Any introduction of retail levies within the videogame industry would, from the publishers’ point of view, erode any previous financial benefit derived from tax relief at the development stage, mainly because retail levies would apply across all products whereas only a percentage of videogames in development would be successful in obtaining tax relief."
ELSPA, now known as UKIE, claimed that it was not engaging in "anti-tax talk" at the time:
"We have no idea where that has come from, it’s totally left of field and has certainly not been on the agenda of any of the many political briefings we’ve been involved in," said ELSPA director general Michael Rawlinson at the time. "That’s not to say it’s not true, but we’ve been discussing tax relief for some time, and lobbying solidly. It’s something we haven’t come across."
Inevitably, the games industry did manage to secure film-style tax breaks in the 2010 budget from outgoing government early in 2010, but as the new government began making deep budget cuts, the tax break was one of the first items on the chopping block.
None of ELSPA’s concerns on cultural tax breaks had been made public until the GI.biz report.
On a related note, GI.biz also offers an extensive timeline of events dated January 2008 – November of this year related to ELSPA’s public statements on tax breaks for the UK games industry.
Thanks Vincent Scheurer of London-based law firm Sarassin LLP – who had a hand in making the report possible in the first place because of its Freedom of Information Act request on lobbying efforts.