DCMS cries foul and asks European Commission to call in World Trade Organisation and check legality of Canadian tax breaks

UK Government ‘declares trade war’ on Canada

The UK’s Ministry of Culture, Media and Sport has formally started an investigation into the legality of Canada’s tax incentives for games studios.

According to a report on Canwest News Service’s The Vancouver Sun a Department of Culture, Media and Sport (DCMS) spokesperson cofirmed that “the UK government is concerned that state aid offered to computer games companies by a number of federal institutions in Canada may not be compatible with World Trade Organization principles” and has opened a European Commission investigation into the country’s subsidies to see if they contravene WTO rules.

The move follows months of outcry from UK studios that subsidies in Canada are creating unfair competition. According to information collated by trade association Tiga for its Playing for Keeps report last year, the UK slipped to the fourth in the listing of the world’s biggest development countries, knocked down from third by Canada.

Tax incentives are available in a number of Canadian provinces. Manitoba has the most generous – companies can write off up to 45 per cent of labour costs. Quebec is one of the busiest regions for games development in the country and provides a 37.5 per cent tax credit on wages, while Ontario offers a 30 per cent tax credit for small companies, and 20 per cent for companies whose annual revenues are above $20 million.

Since the Playing for Keeps report was published in October 2007, a number of UK studios demanded the Government implement its own tax credits – similar to those available to film-makers – in order to compete.

However Culture, Creative Industries & Tourism minister Margaret Hodge said that such a credit might contravene EU rules and the Government would rather consult the legality of the Canadian offer via the World Trade Organisation, despite developers saying such a move would take too long or fail.

In the meantime, the European Union has given the go-ahead to tax breaks in France – provided the support games with a ‘cultural’ element – paving the way for other governments in Europe to do the same if they wish.

Clearly, the Government still maintains that the Canadian subsidies are the real threat, and that it should not intervene financially to aid British studios, hence the renewed official move via the WTO.

Guillaume de Fondaumière head of trade association APOM which serves developers in France, says the move is a mistake.

He recently posted here on the Develop site that France’s own investigations already found that “Canada’s tax breaks are more or less aligned with WTO policies”.

He said: “APOM and French government services had looked a few years ago at the opportunity to challenge Canada’s incentives with WTO. Our conclusion was such a challenge would lead nowhere.”

Instead, he recommended: “The UK should rather join forces with the France (which made the first move in the ‘tax break direction’ a few weeks ago) as well as other Euro countries understanding the imperial need to save a key industry and convince the European Commission to widen its horizon on the subject and allow all games to benefit from tax credits and other incentive.”

Unsurprisingly the move has been met with derision in both the Canadian press and its government: "Canada fully complies with its WTO obligations," a Canadian Department of Foreign Affairs and International Trade spokesperson told United Press International.

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