U.K. Video Games Get Tax Credit Boost

A still from "Grand Theft Auto"

The European Commission gives the U.K. government's proposed tax relief for the sector the greenlight.

LONDON – The video gaming sector will benefit from a whopping $300 million (£188 million) in extra investment, according to industry estimates, after the European Commission gave U.K. government's proposed tax relief for the sector approval on Thursday.

The European Commission approved the long-awaited U.K. video game tax relief, which aims to provide a boost to an industry that has faced fierce competition in recent years from developers in countries such as Canada and France that already offer tax incentives.  

The tax relief will offer a cash tax credit of up to 25 percent of qualifying development expenditure. The move was heralded in the U.K. by industry and business specialists alike.

Rachel Austin, a tax director at Deloitte, said she was sure the U.K. video games industry would be "delighted" with the long-awaited EC approval.

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The relief is based on the successful film tax relief -- which has provided around $1.6 billion (£1 billion) of support to over 1,000 films since its introduction in 2007 -- and the television tax relief that was introduced last year.

Said Austin: "The U.K. government has been consulting on the video games tax relief for a number of years. Its introduction was delayed last year when the European Commission launched an in-depth investigation due to concerns that the U.K. video games industry did not face an obvious market failure. The Commission has confirmed today that its initial concerns have been addressed and that the relief is targeted at culturally British video games, which face difficulties in raising finance."

Austin noted that the U.K. sector "demonstrated that the proposed cultural test ensures that the aid supports only games that are of cultural value; around 25 percent of U.K.-produced games are expected to be eligible for the tax relief."

Slightly different cultural tests are proposed for each of three creative sectors but each is based on the test in the current film tax relief. Tests will require a production to score at least 16 points out of a maximum of 30 or 31 across a range of cultural attributes.

Points will be awarded for British locations, British characters, English dialogue, demonstrating British heritage or creativity, production activity taking place in the U.K. and use of British cast and crew.

TIGA, the trade association representing the U.K. video games industry, said the relief would be worth $300 million "between now and 2019 alone." TIGA mounted a campaign for a tax relief for its sector nearly seven years ago.

TIGA CEO Richard Wilson said: "This is a superb decision by the EU Commission and magnificent news for the U.K. video games industry. It is also a striking success for TIGA, for its members and for the wider video games industry that TIGA represents. GTR will create jobs, boost investment and enable the production of more British video games."

Wilson said his organization's research has demonstrated that tax relief for the U.K. video game sector "will increase employment, drive innovation and secure additional investment in the industry."

Specifically, TIGA's research indicates GTR should create thousands of jobs, encourage $300 million in additional investment expenditure by U.K. studios and generate $288 million in new and protected tax receipts to HM Treasury, "and all at a cost of just $160 million (£96 million) over five years."

TIGA chairman, CEO and creative director at games company Rebellion Jason Kingsley said: "Not only does this show video games in cultural terms are truly beginning to be given the respect the medium deserves, it also gives the U.K. a level playing field and a fighting chance to become a top three game-making nation once again."

Vincent Scheurer, CEO of Sarassin and a games industry legal expert, described the EC greenlight as "the most important event to occur to the video game industry in the U.K. since I started working for a games publisher 16 years ago."

Mark Gerhard, CEO & CTO Jagex, game developer, publisher and maker of RuneScape, said: "Studios across the U.K. need to collectively show that the fight for their introduction has been a worthwhile one by maximizing their potential to deliver a robust, expanding games industry in this country."

Elaine Green, owner of Nellyvision, an independent studio formed after the Second Life makers Linden Lab closed down in the U.K. in 2010, said: 
"As a smaller developer dealing with all the challenges small businesses in the U.K. face whilst also competing against foreign businesses who have been receiving generous tax breaks, this is a breakthrough moment."

Trevor Williams, Playground Games, developers of hit racing game Forza Horizon, said: "Our vision has always been to build a development studio which could compete with the very best in the world, creating big-budget console games for a global audience, TIGA's hard fought victory for Games Tax Relief will be a huge help to us in achieving our goal."