The European Commission is to open an investigation into the UK’s plans to provide tax relief to the video games industry. In a press release issued on Tuesday, the European commission outlined why it believes that tax relief may not be required and in some cases may lead to unfair competition and discrimination.
Here’s the release in full:
The European Commission has opened an in-depth investigation into the proposed UK video games tax relief. The objective of the measure is to provide an incentive to video games developers to produce games meeting certain cultural criteria. However, the Commission considers that there is no obvious market failure in this dynamic and growing sector and that such games are produced even without state aid. Consequently, at this stage, the Commission doubts that the aid is necessary. The opening of an in-depth investigation does not prejudge its outcome. It gives the UK and other interested parties the opportunity to comment.
Commission Vice-President in charge of competition policy Joaquín Almunia observed: “The market for developing video games is dynamic and commercially promising. It is not clear whether the taxpayer should be subsidising this activity. Such subsidies could even distort competition.”
The UK intends to introduce a 25% tax relief on a maximum of 80% of the production budget of a qualifying video game for expenditure on goods and services used or consumed in the UK. However, based on the information available at this stage, the Commission doubts whether:
aid is necessary to stimulate the production of such video games;
limiting expenditure for the tax relief to goods or services ‘used or consumed’ in the UK would not be discriminatory;
offering this type of aid would not fuel a subsidy race between Member States; and
the proposed cultural test ensures that the aid supports only games with cultural content without leading to undue distortions of competition.
Interested parties are invited to comment within a month of the publication of today’s decision in the EU Official Journal.
Article 107(3)(c) of the Treaty on the Functioning of the European Union (TFEU) provides that aid to facilitate the development of certain economic activities or of certain economic areas can be compatible with the internal market where such aid does not adversely affect trading conditions to an extent contrary to the common interest.
Article 107(3)(d) of the TFEU provides that aid to promote culture and heritage conservation can be compatible with the internal market where such aid does not affect trading conditions and competition in the Union to an extent that is contrary to the common interest.
The decision will be made available under the case numbers SA.36139 in the State Aid Register on the DG Competition website. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.
Antoine Colombani (+32 2 297 45 13)
Maria Madrid Pina (+32 2 295 45 30)
This isn’t ‘news’ as such. ‘State aid’ is banned by the EU and the recent tax breaks system which was implemented in France used the ‘cultural test’ to claim that their games are of cultural/national significance.
Industry body TIGA has already stated it will be working with the UK (and hopefully Scottish) government to collect and provide evidence that there is a market failure in the creation and commercial release of games which are culturally British.
Develop has an excellent timeline of the tax breaks saga to date.