Laid bare: TIGAâ??s tax break policy

Jason Kingsley is the chairman of TIGA and CEO at longstanding UK outfit Rebellion Studios. In his address below, he has outlined the intricate policy demands for tax breaks, how they can be implemented, and their intended effects.

TIGA has also thoroughly explored its future policy for reforming the game education system, as part of the association’s newly-released manifesto on its future policy for the video games industry.

"I have been working in the UK video games industry for over 20 years. The company Rebellion that I founded with my brother Chris is one of the largest independent video games developers in the world, with over 250 staff and an annual turnover of more than £12 million. The company has multiple offices throughout the UK, including Oxford, Runcorn and Liverpool.

Rebellion works with the best game publishers in the world including Lucas Arts, Activision Blizzard, Electronic Arts, Sega and Ubisoft. We have developed 19 international number one hits including games based on Star Wars, The Simpsons, Harry Potter, Alien Vs Predator, Call of Duty, Sniper Elite, and have received numerous awards including 5 BAFTA nominations for our work.

In 2001 Tiga was founded to represent the UK video games industry. I was the driving force behind creating Tiga and am currently Chairman of the organisation. Since its inception, but particularly over the last two years, we have worked hard to raise the profile of the video games industry among Parliamentarians. I have personally given evidence to a parliamentary select committee and I regularly lobby MPs on key industry issues.

The UK video games industry has a rich and illustrious past – working with and creating some of the world’s most successful entertainment franchises. However our industry also faces considerable challenges. Many of our international competitors receive significant advantages in terms of tax breaks and other fiscal support from their governments.

If the UK video games industry is to continue to be world beating then policy makers must recognise its importance and introduce the Games Tax Relief, as well as other fiscal, administrative and educational reforms. I was delighted by the Government’s announcement in the Budget in March that it intends to introduce Games Tax Relief. We now need to see this measure introduced at the earliest opportunity.

It is worth explaining that when we talk about the UK video games industry, we are not only talking about companies that make racing games or action games for the PlayStation or Xbox. We also represent a sector making social games, educational games, traditional games, historical games, sports and fitness games.

I am extremely passionate about the ways in which videogames can educate as well as entertain. Videogames can also be used to inspire young people and encourage them to continue studying computer science, maths, art or design, in order to work in our industry.

The video games industry is one of the future and the men and women who work in it are among the most highly educated, creative and talented people in the country. We seek support to help our industry to grow.

To ensure the continuing success of this pre-eminently creative sector, I urge political parties to support TIGA’s agenda for the video games industry and particularly our Games Tax Relief policy.

Games Tax Relief

Proposal
The Government announced in the Budget on March 24 that it would introduce Games Tax Relief. TIGA believes that Games Tax Relief should be introduced as soon as possible.

It should have the following attributes:

1) Eligibility for the Games Tax Relief would cover any company within the scope of UK Corporation Tax.

2) Video games would need to pass a cultural test, scoring against criteria of European heritage and game locations, languages, technical or creative technological innovation, narrative, and location of development and key development staff.

3) The Games Tax Relief would be calculated and applied in a similar way to the existing tax relief for British films. A development company would be entitled to an additional deduction in computing their taxable profits equal to the UK expenditure incurred in developing a game, or 80 per cent of the total expenditure incurred in developing a game, whichever is the lower.

The development company would then be entitled to a tax credit calculated on the amount of the deduction, which it would either be set off against the income from the game or recovered as a payment from HMRC.

4) The Games Tax Relief should have three tiers of benefit: 20 per cent of core expenditure for budgets above £6,000,000, 25 per cent for budgets over £3,000,000 but less than £6,000,000 and 30 per cent for budgets of over £100,000 but under £3,000,000. The three tiers are designed to reflect average production budgets of video games on different games platforms, and correspondingly different sizes of company.

If Games Tax Relief is to assist the production of culturally British mobile games then it would be advisable to extend relief to games with a budget of £50,000 or more.

5) An independent organisation with knowledge and experience of video games production would administer the cultural tests, checking submission criteria are met and policing the Relief. It would issue interim certificates or letters of comfort confirming a product has passed or provisionally passed the cultural test to ensure candidate projects are funded.

Reason
Overseas government support for video games development over the last decade has created an increasingly uneven international playing field, making it difficult for UK games developers to compete. Our principal competitors in Australia, Canada, China, France, South Korea, Singapore and the USA all receive national or regional/state tax breaks for games production.

For example, Montreal in Canada offers 5 year income tax holidays for foreign specialists and pays 37.5% of games companies’ salaries for 5 years. Likewise, France provides a 20 per cent games production tax credit for games that pass a cultural test.

Between July 2008 and July 2009 the headcount at British video games studios fell by 4 per cent, and 15 per cent of British video games development studios, publishing and service companies went out of business.

Yet global industry sales grew by 20 per cent in 2008 compared to 2007. In turn, between July 2008 and July 2009 the UK video games industry’s contribution in tax revenues to the Exchequer fell by £17 million and the sector’s contribution to Gross Domestic Product (GDP) declined by £41 million.

British-made video games are facing a long-term decline in the global sales charts, despite a record 2008. The UK is expected to fall to fifth place in 2009, overtaken by Canada and South Korea, whose studios are heavily government supported.

British consumers have a strong preference for British made video games, purchasing four times more British-made video games than US consumers. Yet decline means that the British public faces decreasing access to British-made video games.

A brain drain, in particular of skilled and experienced staff, to subsidised studios overseas is beginning to bite, with a recent survey finding this issue and overseas subsidies the top concerns of senior UK industry executives.

Effect
Games Tax Relief is expected over a five year period to: create or save 3,550 graduate level jobs (or the vocational equivalent); increase or safeguard £457 million in development expenditure; and secure £415 million in new and saved tax receipts over five years. This measure will drive sustained growth in the UK studio sector and halt the current decline in investment in and jobs. The outlay for the Government is anticipated to be £192 million over the same period."