EU Commission to investigate whether tax relief for video game developers in the UK is necessary

The introduction of a tax relief for UK video game developers has a hit another roadblock today, after the European Commission announced that it would be conducting a fresh investigation to see if it was a sensible use of taxpayer’s money.

The subsidy was unveiled by Chancellor George Osborne in last year’s budget. It was intended to kick in on April 1, 2013 and would involve a 25 percent tax relief on the overall budget of a video game, with a maximum ceiling of 80 percent of the studio’s total production costs.

The objective was to nurture and grow the video game development scene in the UK and provide an extra incentive for coders and designers to stay in the country, rather than move abroad to popular studio destinations such as Montreal and Vancouver.

The European Commission, however, has said that there is “no obvious market failure” in this regard and that the video game market is a growing sector with or without a subsidy from the UK government.

While it’s true that sales of video games remain strong, particularly with mobile apps, social games and free-to-play games, the UK development scene still pales in comparison to North America and Japan.

The <3 of EU tech

The latest rumblings from the EU tech scene, a story from our wise ol' founder Boris, and some questionable AI art. It's free, every week, in your inbox. Sign up now!

There’s been a few breakout developers such as Rocksteady Studios, creator of the Batman: Arkham Asylum and Batman: Arkham City games, as well as LittleBigPlanet and Tearaway makers Media Molecule, but otherwise large success stories are few and far between.

The European Commission still doubts the need for a video games tax relief in the UK and is questioning whether:

• aid is necessary to stimulate the production of such video games;
• limiting expenditure for the tax relief to goods or services ‘used or consumed’ in the UK would not be discriminatory;
• offering this type of aid would not fuel a subsidy race between Member States; and
• the proposed cultural test ensures that the aid supports only games with cultural content without leading to undue distortions of competition.

The European Commission has emphasized, however, that opening an investigation “does not prejudge its outcome.” Or in other words, they’re not jumping to conclusions just yet.

There’s no word on when the investigation will officially launch or report back, but the European Commission says interested parties will be able to comment throughout the proceedings.

Commission Vice-President in charge of competition policy Joaquín Almunia said: “The market for developing video games is dynamic and commercially promising. It is not clear whether the taxpayer should be subsidising this activity. Such subsidies could even distort competition.”

The implementation of a tax relief, if and when it gains approval from the European Commission, is still a long way off. Depending on their conclusions, the UK video game industry could look very different in the years ahead.

Image Credit: ALEXANDER KLEIN/AFP/GettyImages