The Polish Ministry of Culture is currently working on the draft law on financial support for cultural video games. The draft law is supposed to be completed in the fourth quarter of this year at which point it will be forwarded to the Polish Parliament where the main stage of the legislative process will take place. The new law is supposed to come into force in 2020 and may be one of the major factors which may positively impact on the Polish gaming industry.
The basic idea
The rationale behind the new law is to introduce tax relief for the production of cultural video games in order to support the competitiveness of the gaming industry in Poland, to compete with other jurisdictions and thus also to counteract the capital outflow and emigration of qualified specialists.
The draft law is strongly inspired by similar legislation in other countries, in particular in France, the UK, Finland but also in other countries, which have had positive experiences with similar tax relief schemes. In France similar tax relief was introduced in 2007 and in the UK the Video Game Tax Relief (VGTR) was introduced in 2014 – these countries have already analysed the effects of the new laws and concluded that the relevant legislation brought the expected advantages (reduction of workplace offshoring, bringing the workplaces back to the country, reducing the scale of sub-contracting work to Asian companies, reducing the risk as related to the production of video games, increase in number of the produced video games, increase in their quality, employment growth and reduction of specialists emigrating).
The logic behind the draft law is therefore fairly simple – if it works in other countries Poland should follow suit. Consequently, the draft law is similar to French and British regulations and concepts, including the system of provisional certificates and final certificates, the cultural test with the system of points.
A chance for foreign game developers
One of the goals of the draft law is to create conditions for foreign investment in producing cultural video games in Poland and also to allow for cooperation between foreign and Polish video game producers. Tax relief will be available to game developers from other countries, however in order to formally apply for the financial support they will have to establish a branch in Poland.
Most importantly the video game would not necessarily have to be based on Polish history or Polish culture – it may be based on European cultural heritage, provided that other criteria of the cultural test are met: the game has a culture-forming or innovative character, is being produced in Poland and European specialists are involved in the production process.
The significance of the draft law
It is expressly stated in the written grounds of the draft law that video games are a fully-fledged medium able to convey cultural message to their users. Consequently, it is no longer just a primitive entertainment but it is also (or rather primarily) a channel used to disseminate cultural content. This conclusion may appear very obvious or maybe even very trivial for the gaming industry itself, though if one considers that it is the outside perspective and, even more importantly, a perception of the official authorities (i.e. the Ministry of Culture), then one realizes a significant breakthrough point in the general perception of video games as such.
Furthermore, this is the first complex legislation specifically devoted to video games in Poland. Of course, one can come across the term “video games” in tax legislation but it is certainly insignificant compared to the said draft law which in this context is absolutely unique. Consequently, the legal significance of the draft law is fundamental and clearly goes beyond its subject scope and definitely cannot be reduced to the tax relief for the production of cultural video games.
Legal definition of video game
The draft law includes a legal definition of a video game which reads as follows:
“a computer program which is integrated with content elements, including those in the form of pictures and sounds, which provides its users with the opportunity to solve interactive tasks of an entertainment or educational character, which are based on a set of rules and made available via electronic devices equipped with interface which enables interaction”.
In addition the draft law includes a definition of a cultural video game, which is simply the video game which passes the cultural test. The logic behind having the definition is a fairly obvious need to determine the application scope of the new law. This is very important in practice – the relevant authority needs to know which video game can apply for the financial support. However the definition has already met with justified criticism at the public consultation stage – the main argument is that such definition reduces the video game to (or at least put the main stress on) software (computer program) which is supplemented by other elements such as content, graphical layout or music. This perspective is unbalanced, as it appears to underestimate the other elements of a video game (music, graphical design, the narrative) which may be equally or even more important.
Moreover there is currently ongoing discussion in Poland mostly between the academics as to the character and nature of the video game, in particular in the context of copyright protection and the expressed opinions are of course divergent, though all academics appear to agree on one point: a video game cannot be reduced to a computer program/software and one cannot assume that other elements of the video game are always less important or of secondary consideration.
It would be a first legal definition of video game in the Polish legal system and as already mentioned it would definitely have a broader impact, which would extend to other areas of law, in particular copyright law. Interestingly enough the issue of defining a video game came up both in France and the UK, where a similar discussion took place, and subsequently a decision was made not to include the definition into the relevant legislation with the reasoning that the term video game itself is sufficiently clear to be well understood without the need for any legal definition or any other intervention of a lawmaker in this respect.
Only those video games which are considered “cultural” can qualify for the planned tax relief. In order to be regarded as “cultural” the given video game has to pass the cultural test, which is divided into 4 main criteria:
1. the video game is based on Polish or European cultural heritage; 2. the video game is of culture-forming or innovative character; 3. the video game is produced on the territory of Poland; 4. Polish or European specialists are involved in the production process.
Based on the written grounds of the draft law the following features will be relevant in the cultural test:
1. the plot/action in the European country; 2. identity and origin of the characters, their ties to European culture; 3. the role and the participation of the narrative in the video game, 4. dialogues or subtitles in Polish.
The test will be based on a system of points, it will be required for a game to score a minimum of half the points in total, including a minimum half of the points for the first (Polish/European cultural heritage) and the second criteria (culture-forming or innovative character) separately.
In order to take advantage of the tax relief a game developer will have to file an application. However it is worth noting that not all game developers will be in a position to apply – the tax relief will not be available to those companies which e.g. are in arrears with payment of taxes or social insurance contributions, are in the process of liquidation, bankruptcy or restructuring proceedings, which violated the terms of the granted tax relief in the three years prior to the application or their shareholders or board members were convicted of certain crimes. Similarly some video games will also be excluded, i.e. games where their main goal is to promote or advertise products or services of a commercial character or to disseminate pornographic content, games which may be qualified as gambling or which are not intended for commercial distribution.
The cultural test (its template will be regulated by way of the ministry ordinance) needs to be filled out and attached to the application. Furthermore the application includes amongst other information on the core production team (i.e. an individual who is the main producer, the main scriptwriters, main composers, main graphic designers, main programmers and designers), cost and time schedule, financing plan or production locations. Last but not least the application specifies the given video game itself and also includes the game design document and confirmation of copyrights (or a license) to the script or literary basis (if any).
If all the relevant prerequisites are met the ministry will issue a provisional certificate. The certificate will be issued for three years with an option to extend for a further two years. This is a stage at which a game developer may actually start taking advantage of the tax relief.
Once the production process is complete and the game has been introduced into commercial production the game developer will have to provide the ministry with a report, which amongst other includes information on the course of the production and its costs. An updated cultural test document should be attached to the report and simultaneously the game developer should provide the ministry with a copy of the game together with the game design document, screen saves and advertising materials. Based on the report and its attachment the ministry will issue a final certificate which will finally confirm the game developer’s right to tax relief.
The Ministry of Culture will maintain a public register of the granted financial support for cultural video games which will include information from the issued certificates, though for confidentiality reasons the name of the game can be replaced by a code name given by the developer.
Tax relief itself
The financial support will be granted in the form of tax relief. The video game producer will be entitled to deduct qualified costs from the income tax base. Production of video games was defined in the draft law as a set of creative, organizational, economic, legal and technical actions which lead to the production of a video game in a form appropriate for its distribution, including design, production and testing and thus qualified cost may e.g. include salaries, purchase costs of materials or services used directly for the production of a cultural video game, depreciation write-offs for fixed assets except for buildings and premises.
The amount of the qualified cost cannot be lower than around EUR 22,000 (PLN 100,000). Financial support may neither exceed 50 % of the total production costs of the video game nor the maximum amount EUR 50,000,000 on an annual basis including other public subsidies.
The development of the gaming industry continues its momentum, though it is concurrently becoming more and more competitive but also more mature and attractive to potential investors. This impacts on the national markets which for obvious reasons attempt to attract foreign investors as well as to encourage and boost the development of domestic companies from the sector. Consequently, it is good that Poland is trying to catch up with the more developed jurisdictions and is about to adapt the solutions which already proved themselves in practice. However there are still some issues in the draft law which would require some improvement, e.g. the definition of the video game which is most likely redundant or the exclusion of the games which may be qualified as gambling. Especially the latter may be problematic as it may cast a shadow over the practice of using loot boxes which are currently a fairly popular monetisation tool. The Polish lawmaker still has time to consider these issues and to amend the draft law accordingly.