Game devs beg UK taxman: Can we pay 30% less?
Firms spending to create British cultural product deserve a break – trade body
Companies involved in making video games in the UK should receive a tax break worth 30 per cent of what they owe, a trade association has said.
TIGA, whose members include developers and technology firms involved in the UK video gaming industry, said a new Games Tax Relief (GTR) should be available to firms that incur costs working on updates or in fixing problems with games that have already been released in addition to developing the games in the first instance.
The body said that firms should not have to spend a minimum amount in order to be eligible for the relief and called on the government to draft up rules that will help as many firms in the sector as possible to qualify for the tax break.
"TIGA aims to strengthen the UK video games sector and to ensure that the industry supports the wider economic recovery," Dr Richard Wilson, chief executive of TIGA, said in a statement. "If GTR is designed to support both small budget games and larger projects, provides a significant level of relief and incentivises continuous content creation, then we can achieve these objectives."
"Games are increasingly being developed as a service, with a large amount of the content being created and released post-launch, and the game evolving over time. So it is important that studios are able to claim relief on costs arising after the release of a game," Dr Wilson said.
TIGA outlined the plans in a response to government proposals to extend corporation tax reliefs currently available for certain "culturally British" film productions to other creative industries. The government launched a consultation on the issue earlier this year.
Under its plans more than 4,660 "direct and indirect highly skilled jobs" would be created within the next five years and the industry would contribute £172m to the Treasury, TIGA said.
Under EU state aid rules, however, only companies producing culturally British content will be eligible for the relief. The government is still due to draft the "cultural test" that will apply for determining the eligibility of firms for the tax break. However, TIGA has urged it to draw up rules that will mean as many companies in the video games sector as possible can benefit from the relief.
In a report by the Financial Times, Dr Wilson suggested that the government may want to enable companies that create games with a "British feel" to qualify for the tax break. He argued that the makers of the Grand Theft Auto game should, under the rules, qualify for the relief since the game reflects British humour, among other things, the report said.
"TIGA firmly believes that video games can be cultural products," the body said in a statement. "They can reflect the society in which they are created. British video games developers can: generate iconic characters; create innovative new video games genres, narratives, art, music and use humour, science and learning innovations as vehicles for education."
"TIGA has emphasised to the government that the more developers and digital publishers can be given a degree of certainty as to whether a game will qualify in advance, the more effective Games Tax Relief will be," it said.
However, tax law expert Matthew Rowbotham of Pinsent Masons, the law firm behind Out-Law.com, said that it was unlikely that the government would draw up too broad a cultural test for the eligibility for the relief.
He said that TIGA's proposed 30 per cent tax relief rate was "more generous than film tax relief in the UK" and would be "more generous than France’s video games relief" regime.
"There is a real uncertainty around how the cultural test applied to films might be translated into video games," Rowbotham said. "There is a concern that major British games of recent years (such as Rockstar Games’ Grand Theft Auto 4) would not qualify. The government’s answer might well be that this isn’t intended to be a general relief for video games made in the UK."
"EU state aid rules prevent such a wide relief. Nonetheless TIGA is understandably pushing for as generous a test as possible. The idea that games might qualify if they have a 'British feel' is unlikely to find favour with the EU. Pity the poor Secretary of State asked to adjudicate on whether a game has a British sense of humour! The government is likely to play it safe, with a reasonably objective cultural test. Further consultation on the detailed cultural test is expected this autumn."
Rowbotham also said that TIGA's plans to include company's costs in working on fixing problems with, or in providing updates to, games after they have been released, were "quite demanding."
"TIGA propose that the relief apply to costs incurred on post-launch patches, debugging and maintenance," he said. "These costs have no equivalent in the film industry, and arguably are not within the spirit of a relief intended to incentivise content creation. How far the autumn consultation moves towards TIGA on this will be a good measure of the government’s enthusiasm for the relief in general."
In its consultation the government proposed slightly different rules for each of the three new reliefs it was creating, which include reliefs for high-end TV, animation and video games. However, each includes a requirement for 25 per cent of 'core expenditure' to be incurred in the UK and the option of receiving a cash tax credit. The government has not specified the proposed rate of relief but said that it is expected to be of "similar generosity" to the existing film tax relief, which it says has led to £1bn additional investment in the UK film industry.
Under the film tax scheme, available since 2007, the production company of a film with core expenditure of more than £20m can claim an additional deduction of 80 per cent and a payable cash rebate of up to 20 per cent of UK qualifying film production expenditure. Films with a core expenditure of £20m or less are entitled to an additional deduction of 100 per cent and a payable cash rebate of up to 25 per cent of UK qualifying film production expenditure. To qualify, a film must be certified as '"culturally British" by the Culture Secretary on the advice of the British Film Institute.
The government is expected to draw up draft legislation later this year and the new relief is due to be introduced from April 2013, subject to state aid approval.
Copyright © 2012, Out-Law.com
Out-Law.com is part of international law firm Pinsent Masons.
Sponsored: Network DDoS protection