Proposed UK games tax relief under investigation

A tax relief program for game developers in the United Kingdom is under investigation. The European Commission announced today that it has launched an "in-depth" examination of the proposed tax break plan for the region.

The purpose of the tax break is to provide an incentive for developers to make games that meet certain cultural criteria. However, the European Commission questioned the need for the take breaks, as "there is no obvious market failure in this dynamic and growing sector and such games are produced even without state aid."

"The market for developing video games is dynamic and commercially promising. It is not clear whether the taxpayer should be subsidizing this activity," Commission vice president in charge of competition policy Joaquín Almunia said. "Such subsidies could even distort competition."

Under the proposed terms of the tax relief, the UK would introduce a 25 percent break on up to 80 percent of the budget for UK-developed games.

In addition to concerns about the need for such a tax relief, the Commission said it believes such a break could create a "subsidy race" between member states and has doubts about the merits of the proposed cultural test.

As Polygon points out, a pair of UK trade organizations voiced disappointment for the Commission's decision today to launch an investigation.

The Independent Game Developers Association CEO Dr. Richard Wilson called the choice a "very disappointing hold-up which if prolonged could jeopardize much needed investment and job creation in the UK's games industry." He pointed out that "this is a delay, not a defeat," noting that the UK's film tax relief also faced scrutiny before being introduced.

CEO of The Association for U.K. Interactive Entertainment Dr. Jo Twist also voiced displeasure for the investigation. In a statement, she claimed the proposed tax relief is "vital" for nurturing game talent in the region and expressed optimism that the measure will be successful in time.

"We are extremely disappointed that the European Commission has decided to open an in-depth investigation into production tax credits for the UK games industry," Twist said. "We believe this support is crucial in opening up the opportunity for developers to make culturally British games, but also as a vital incentive for development studios and large multinationals to base their development in the UK and nurture the talent here. We are still confident of having the scheme introduced and are fully committed to having it in place as soon as possible."