Brussels Questions Tax Credit For French Video Game Makers

by Ulrika Lomas, Tax-News.com, Brussels

23 November 2006

The European Commission has decided to open an in-depth investigation under the EC Treaty rules on state aid into a proposal to grant a tax credit for video game creation in France.

According to the French authorities, the measure is compatible with the Community rules as its aim is to promote culture.

However, the Commission said that its investigation will enable it to determine whether the measure supports only products with a cultural content and whether or not it leads to undue distortion of competition in the common market.

"We must be sure that the measure will promote only genuine cultural projects and that it will not have the effect of an industrial policy instrument in favour of the video games sector," commented Competition Commissioner Neelie Kroes.

The European video games industry faces growing international competition from Asia and North America at a time of technological change linked to the introduction on the market of a new generation of games consoles.

Under the measure notified by the French authorities, video game production studios in France are to be granted a tax credit worth 20% of the cost of producing certain video games. To qualify for the tax credit, video games must fulfil a number of criteria. In particular, they must either be an adaptation of an existing work of European origin or satisfy a test of quality, originality of concept and contribution to the expression of European cultural diversity and creativity as applied to video games. These two criteria are aimed, according to the French authorities, at selecting video games that constitute cultural products.

The EC Treaty stipulates that state aid to promote culture which does not unduly affect competition and trade between Member States is compatible with the common market. Following a preliminary investigation, the Commission considers that doubts remain as to the compatibility of this proposed tax credit scheme with the EC Treaty rules on state aid.

The EC said that criteria used to select video games eligible for the tax credit may give rise to a potentially broad interpretation and it is not clear that they make it possible to select only video games with a cultural content.

"At this stage, it cannot be ruled out, for example, that simulation video games or video games based on motor car races might benefit from the measure," the EC said in a statement.

"Moreover, the Commission must take account of the effect this tax advantage may have on European competitors of beneficiary firms," the executive added.

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