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Tax break on games delayed

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The UK games industry is still anxiously awaiting approval from the European Commission on a tax break which was due to be introduced on 1 April 2013.

The tax break would mean a 25% tax relief offered on up to 80% of a game’s production budget if the cash was spent designing, producing and testing the title in the UK. Games focusing on gambling or advertising would not qualify for the relief, and titles involving pornography or other “extreme material” would also be excluded. The objective of the tax break was to nurture and grow the video game industry in the UK and provide an extra incentive for coders and designers to stay in the country.

The UK government says it remains committed to the proposal despite the view of the EU competition commission that aid was not needed to stimulate video game production. Joaquin Almunia, vice-president for competition policy has said that the market for developing video games is dynamic and commercially promising and that a tax relief  in an individual Member state could actually distort competition within the EU.

The European Commission is looking into and questioning the following:

  • is aid necessary to stimulate the production of such video games;
  • would limiting the scope of the tax relief to goods or services ‘used or consumed’ in the UK not be discriminatory;
  • whether offering this type of aid would fuel a subsidy race between Member States; and
  • if the proposed cultural test as laid out in the draft Cultural Test (Programmes and Video Games) Regulations ensure that the aid supports only games with cultural content without leading to undue distortions  of competition. The cultural test provides that a game must be awarded at least 16 points to be eligible for the proposed tax breaks. Four points will be awarded to games if at least 75 per cent of the game is set in the UK or another EU state, and three points if only 66 per cent is set in such locations. Other tests includes how many characters depicted in the game are from the UK or another EU state, if the game depicts a British story or one which relates to an EU state, and whether the title helps promote, develop and enhance British culture.

The UK film industry had to fight hard for its tax credit, and went through the same investigation process before the scheme was introduced.  It will be interesting to see the findings of the Commission and whether this long awaited tax relief receives the seal of approval.

If you have any queries in relation to this blog please contact John North, Head of Corporate and Commercial on 020 7583 2222 or or Sonia Mohammed


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