UK Game Industry Tax Credits May Be Scuppered By EU

by Robin Pilgrim, LawandTax-News, London

09 September 2009

Even with the support of the National Endowment for Science, Technology and the Arts (NESTA), the required European Commission approval of a proposed cultural tax credit for UK games production could be difficult to obtain.

It has been suggested that the UK Department of Culture, Media and Sport could speed up the process by developing proposals that mirror the already approved ‘cultural’ tax break system in France, however.

Intellectual Property (IP) development in the games industry has slowed over the past five years, and there are fears that this trend will continue over the foreseeable future according to a new survey commissioned by NESTA.

The poll revealed that until recently, Britain was the third most successful video games industry in the world, behind the United States and Japan, but found that it is expected to fall to fifth place in 2009, and sixth place in 2010.

Employment in the UK games development sector fell by 4%, and 15% (44) of its companies went out of business between July 2008 and July 2009, resulting in millions in lost tax revenues, industry estimates have found. Investment in privately-held games companies has also dropped by 60% since 2008.

This is despite global industry sales growing by 20% in 2008 compared to 2007. The impact of a new brain drain of experienced staff to subsidised studios overseas is beginning to bite, while overseas government support for indigenous games development industries increased as countries including Canada, Germany, Japan and South Korea increased their fiscal support.

Almost all of those surveyed saw the proposed tax credit as a way to turn the tide for the industry. In particular, they felt that it would bring new investment to the sector, create jobs and trigger innovation.

The trade association representing the UK games industry, TIGA, has proposed Games Tax Relief in line with existing legislation for the UK film tax relief.

Three rates of relief would benefit large and small games studios, with games needing to pass a cultural test, scoring against criteria of European heritage and game locations, languages, innovation, narrative, and location of development and key development staff. 44% of UK made games profiled in an exercise for the report met the criteria.

According to TIGA, the proposed Games Tax Relief would create 1,400 new jobs and trigger hundreds of millions of pounds in new investment by British studios.

It has been estimated by TIGA that the Games Tax Relief would cost GBP54m (approx USD89m) in year one (covering current and new projects), falling significantly thereafter. This is a fraction of the cost of the tax relief scheme in place for the UK film sector, the industry body argued.

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