EU-wide ban on game tax breaks

France is on the brink of permanently losing its game tax breaks as industry officials urge Brussels to lift a new EU-wide ban on the initiative.

Develop understands that French protocols for game development tax relief expired, as scheduled, in January. The country’s scores of studios can no longer apply for the scheme, which usually offers a twenty per cent refund on production costs.

A reintroduction of the measure in France must be approved by Wouter Pieke, the European Commission Directorate General for Competition, but discussions between Pieke and French officials are thought to have tangled over several issues.

State aid is generally forbidden in EU law, but in 2007 game tax breaks were recognised as an exception until 2012.

Unless the exemption regulation is extended, the UK, France and all other EU states would be prohibited from enacting game tax breaks whether or not their governments approved them.

There is a “genuine concern” that the EU will not reintroduce tax break measures, a source familiar with the matter told Develop.

It remains unclear which side of the negotiating table is opposed to reinstating the measure. A source close to the matter said the issue “has become more complicated” since talks began.

European Commission officials are deliberating whether such benefits can distort the single market by giving companies in one EU state an unfair advantage over others.

Meanwhile, French officials, currently battling a national budgetary crisis ahead of a presidential election, are contemplating whether it can set taxpayer money aside to fund tax relief measures.

Develop understands that Paris studio Quantic Dream, the acclaimed developer of Heavy Rain, would likely transfer some of its resources to Canada if the block on tax breaks is permanent.

‘An historic mistake’

Guillaume de Fondaumiere, the co-CEO of Quantic Dream, has told the European Commission that “the abandonment of this flagship measure, which brings hope to a large number of European studios and which has demonstrated its effectiveness in France, would be an historic mistake”.

de Fondaumiere, also the chairman of the European Games Developer Federation (EGDF), warned that France would suffer from the same ‘brain-drain’ affecting the UK if tax breaks are abandoned.

“We would like to point out that this French measure has not caused any distortion in competition within the EU,” he wrote in a letter to Pieke and seen by Develop.

de Fondaumiere denied that France’s tax break protocols had given the nation an unfair advantage over other EU states, but insisted that they make France more appealing to global publishing firms.

“Ubisoft has relocated some of its production activities back to France between 2008 and 2011 – a step they clearly attributed to the video game tax credit,” he said.

Quantic Dream’s current projects still qualify for state aid. de Fondaumiere told Develop that, if France does not re-enact its tax breaks, he would look at how to utilise similar initiatives in Canada.

A European Commission spokesperson told Develop that “French authorities have said they want to extend the scheme and have now provided detailed information on the effects of the earlier measures”.

“The Commission is analysing the request – no decision has been taken.”

Global shifts

The world-leading tax break initiatives on offer in some Canadian regions have caught the games industry’s attention on a global scale.

Publishing giants Ubisoft, EA, THQ and Square Enix are each investing in super-size studios across Quebec due to the promise of a 37.5 per cent return on investment through tax breaks.

The UK games industry, which has battled for similar aid for several years, is said to be losing vast numbers of talented workers to Canada.

A recent report from trade group Tiga claimed that the UK’s game developer workforce has contracted by about ten per cent since 2008.

It claims that two-fifths of jobs lost between 2009 and 2011 have been relocated overseas.

de Fondaumiere said the UK represents about 40 per cent of games produced in Europe, and warned that the Britain’s continual decline would have a profound negative effect on the rest of Europe.