Having gained approval in the March 2012 Budget, plans for UK tax breaks for video games developers are now in doubt.
The European Commission (EC) has announced that it plans to investigate the proposals, questioning whether there is an obvious market failure in the UK games industry.
Specifically, it is asking the following questions:
- Is aid is indeed necessary to stimulate UK games development?
- Would limiting expenditure for the tax relief to goods or services 'used or consumed' in the UK would be discriminatory?
- Would offering this type of aid would fuel a subsidy race between Member States?
- Will the proposed cultural test ensures that the aid supports only games with cultural content without lead to undue distortions of competition?
UK trade body UKIE remains hopeful that tax breaks won’t be derailed, however.
“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.”
“The UK games industry needs tax breaks in place in order to be able to compete with other territories and to be able to grow to its full potential. One of the key questions that the Commission is asking is whether there is an obvious market failure in the UK games industry. We shall be gathering evidence to show that British games, being created by British games businesses, are not being made in significant enough numbers for the UK industry to compete globally.
“It is vital that games businesses help to supply evidence as part of this investigation. We will be reaching out to all games businesses and working with TIGA to make sure that the industry speaks with one voice on this crucial issue.
“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.”