During the United Kingdom's March 2012 Budget it looked like plans for tax breaks for video games developers were a lock, but a European Commission (EC) investigation that was announced today has put their future in doubt. The European Commission announced today that it plans to investigate the proposals, and questions whether there is an obvious market failure in the UK games industry.
Specifically the EC is seeking answers to four key questions related to the UK games tax relief plan:
- Is aid necessary to stimulate UK games development?
- Would limiting expenditure for the tax relief to goods or services 'used or consumed' in the UK be discriminatory?
- Would offering this type of aid fuel a subsidy race between Member States?
- Will the proposed cultural test ensures that the aid supports only games with cultural content without leading to undue distortions of competition?
UK video game industry trade group issued a statement today that disappointed but optimistic that the EC investigation won't lead to the death of tax breaks for the sector.
"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," UKIE CEO Dr Jo Twist stated. "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," she added.
Twist added that the UK government continues to be committed to offering tax breaks for the video game industry.
"We are in constant dialogue with UK Government and know that they remain 100 per cent committed to the introduction of the reliefs and shall be working together to respond to the Commission’s questions," said Twist.