As part of the initiative to help the UK’s creative industries through financial incentives, the Government announced, last year, a 25 percent tax relief that it wanted to offer the video games industry. However, the European Commission is now challenging this tax relief initiative.
The European Commission pointed out, “The UK intends to introduce a 25% tax relief on a maximum of 80% of the production budget of a qualifying video game for expenditure on goods and services used or consumed in the UK.” The Commission recalled that under Article 107(3)(c) TFEU aid that intends to facilitate the development of certain economic activities could be compatible with the internal market providing it does not negatively affect trading conditions that are contrary to the common interest. The Commission noted the Government’s initiative intends “to provide an incentive to video games developers to produce games meeting certain cultural criteria.” Yet, the Commission believes that “there is no obvious market failure in this dynamic and growing sector and that such games are produced even without state aid.” In fact, the Commission said that it “doubts that the aid is necessary.”
The European Commission is therefore concerned that the proposed UK video games tax relief breaches EU state aid rules. Consequently, the Commission has opened an in-depth investigation into the tax relief measure for the UK’s video games industry.
All Member States are required to notify and seek approval from the Commission before granting State Aid. It remains to be seen whether the Commission will approve or refuse to approve the proposed measure. It is important to note that Chancellor George Osborne was planning to introduce the tax relief for the video games this month. As Richard Wilson, TIGA CEO, the association representing games developers and digital publishers, said, "The EU Commission’s decision to launch an investigation into the case for GTR is a very disappointing hold-up which if prolonged could jeopardise much needed investment and job creation in the UK’s games industry.”
