EU Approves French Tax Breaks For Computer Game Developers

by Ulrika Lomas, Tax-News.com, Brussels

13 December 2007

The European Commission has authorised, under the EC Treaty rules on state aid, a French tax credit aimed at encouraging video game creation.

This tax credit will be granted only to video games that meet the criteria of quality, originality, and contributing to cultural diversity.

After an in-depth investigation that began in 2006, the Commission has concluded that this measure qualifies for the exemption provided for by the EC Treaty for aid to promote culture.

Competition Commissioner Neelie Kroes stated: “The French authorities have made significant changes to the scheme so as to essentially target video games with cultural content and minimise possible distortions of competition in the European market.”

The aim of the aid scheme is to enable video game manufacturers which are subject to taxation in France to deduct up to 20% of the production costs of certain games. Only video games that meet certain criteria will be eligible. This scheme has been authorised for a period of 4 years.

This aid was notified under a section of the EC Treaty, which authorises aid to promote culture provided that it does not adversely affect trading conditions and competition.

The Commission opened an in-depth investigation into this measure, in order to ensure that it would not act as an industrial policy instrument in favour of the video game sector. Another purpose of the investigation was to assess the impact of the aid on competition and on other European video game companies.

As a result of this investigation, the French authorities were asked to redefine and clarify the selection criteria. The Commission believes that the new, more detailed selection test makes it possible to ensure that only video games with cultural content may benefit from the aid.

Given the small market shares of the manufacturers covered by the measure, the Commission said that it is satisfied that the aid will have a limited effect on competition and on trade between the member states. This effect will be even more limited by the fact that the French authorities have accepted the Commission’s request to largely include subcontracting costs within the eligible costs. These costs had initially been excluded, thus creating the risk that beneficiary companies would be encouraged to internalise their costs, to the detriment of European subcontractors.

The EU's state aid rules are in place to prevent member states from favouring certain companies and industries with beneficial tax rules and subsidies, thus distorting competition within the single market.

Recommended