Anxiety on tax breaks runs deep

Anxiety on tax breaks runs deep

By Rob Crossley

July 2nd 2010 at 1:57PM

Sources outline a staggering number of possible outcomes if the cultural tax test was introduced

A remarkable number of damaging knock-on effects are feared to come true if game tax breaks were given go-ahead in the UK.

The most bizarre is that – providing a lengthy chain-reaction would somehow occur – video games would be refused entry in China.

But the most common is that games would be classified as audiovisual products across Europe – an anxiety that has been routinely rubbished, yet remains prevalent across certain industry groups, bodies and companies.

Those groups believe that reclassifying games would ultimately mean tax rates would rise - and potentially the price of games.

All concerns expose the staggering international legal complexities which drag along with the utopian message of game tax breaks.

These speculative fears are the battleground between big businesses looking globally and the developers themselves hoping to support their national development hub.

Fears for publishers to cherry-pick are numerous, and also completely speculative – a key reason why the true debate about game tax breaks is carried out behind closed doors.

Yet all the concerns appear to be centred on one key chain reaction: if games are cultural, they are no longer merely software, and are subject to new laws, revised tariffs and unknown precedents.

Dozens of industry sources point to concerns (widely expressed as ‘erroneous concerns’) surrounding the ‘cultural’ element to games tax relief. In March, the Labour Government agreed to introduce games tax breaks providing they were based on cultural criteria.

This policy mirrored the cultural games tax relief scheme introduced in France back in 2008 after extensive lobbying and debate.

When French studios and game bodies were fighting for national tax breaks, one group – the Interactive Software Federation of Europe (ISFE) – openly opposed the introduction.

Because, as outlined in this EC doc, the body does not want games to be seen as audiovisual products – because that would spark a chain reaction that would ultimately cost publishers money.

The rapidly evolving nature of videogames – coupled with the slow and measured EU classification process – means that such products are surrounded by ambiguity.

Sources explain that games are part software, part cultural product – yet ultimately undefined. A cultural tax relief measure could pin games to a category that some publishers link to more taxation, and import and export tax risks.