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Yet another hurdle for UK's video game tax breaks

Yet another hurdle for UK's video game tax breaks

April 16, 2013 | By Mike Rose

The proposed video game tax relief in the UK has been delayed yet again, as the EU Commission has launched an investigation into the case for such a relief program.

The British Goverment detailed the tax breaks last year, with the aim to launch the relief this month. However, it was later delayed for an undisclosed amount of time.

Now the EU Commission has stated that it must investigate the tax breaks before they can come into effect.

The UK game industry hopes the proposed tax relief will help to increase employment, innovation and investment in the game sector. However, the EU Commission believes that "there is no obvious market failure in this dynamic and growing sector and that such games are produced even without state aid," and therefore "doubts that the aid is necessary."

In particular, the EU does not believe that aid is necessary to stimulate the production of video games in the UK, and also doubts whether limiting expenditure for the tax relief to goods and services "used or consumed" in the UK would not be discriminatory.

Furthermore, the commission "doubts whether offering this type of aid would not fuel a subsidy race between Member States."

It also takes issue with the proposed cultural test, and does not believe that the test will ensure that the aid supports only games with cultural content, especially as far as undue distortions of competition are concerned.

Joaquin Almunia, commission VP in charge of competition policy at the EU, noted, "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."

TIGA's response

The move has left UK trade association TIGA expressing disappointment, with TIGA CEO Richard Wilson saying that the hold-up "could jeopardize much needed investment and job creation in the UK's games industry."

However, he added, "this is a delay, not a defeat, in TIGA's five year campaign... Both the French Video Games Tax Relief and the UK's Film Tax Relief were also subject to an investigation by the EU Commission before they were introduced."

Notably, the EU Commission's investigation into the French video games tax relief lasted around 12 months before it was given the green light.

"The UK games industry needs to surmount one final hurdle before the Games Tax Relief can be enacted," added Wilson. "We must make a compelling, convincing and constructive case to the EU Commission of the merits of [Games Tax Relief]."

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