The European Commission has at long last dropped its objection to the UK government's plans to bring in a 25% tax relief for video games which are "culturally British."
The UK government's proposal
The UK Government sought to apply the same tax reliefs that apply to British films and theatre productions to video games, in order to boost creativity in the video gaming industry. The relief was due to take effect from 1 April 2013, under provisions contained in the Finance Act 2013, however Brussels delayed its implementation due to concerns that video games were of insignificant cultural value.
Who will the relief benefit?
The tax relief applies to development companies, who design and produce video games and apps for commercial release. It is only applicable to primary expenditure on the development itself, which is why the relief will be of particular advantage to new developers who may struggle to maintain their cashflow when developing a video game, unless they have strong financial backing.
The Commission's concerns with the relief
The Commission raised concerns with the qualifying criteria for relief, that is, the points-based "Culturally British" test. The test looks to factors such as the extent to which a video game is: (a) set in the UK or EEA; (b) the characters are from the UK or EEA; (c) depicts a British story; and (d) contributes and enhances British culture. Consideration is also given to whether production of the game is carried out in the UK and whether those working on the production are UK or EEA citizens.
The Commission's initial concerns have now been addressed and they are satisfied that the UK government's tax relief will incentivise development, so it has dropped its objection.
The approval is due to be announced officially by mid next week. It is estimated that up to a quarter of UK-video games will qualify for the relief.