The computer games tax breaks saga: How it all began

Many people have been active and involved in lobbying for tax breaks, for which European Commission approval was obtained last Thursday. Rarely can you can say it’s all down to one organisation or one person, but it’s always good to have been in at the front end and, after 13 years, finally win.

Back in 2000, as TIGA was being mooted and then formed, it was not long since the film industry had received its production tax break, allowable under the EU’s ‘cultural opt out’ of normal trade rules.

Coming from the TV and film world, the games industry was rather more feral compared to its cousins in other creative industries – not least on issues of government. After years of being looked down upon by the UK establishment, and accused of perpetrating all the worst evils of society, the ‘we don’t need any help from politicians nor anyone’ attitude was prevalent. And some parts of the industry were doing very nicely thank you – imagine, there were British developers and publishers, trading on the London stock market (alas!).

Nobody would argue today that there was a need for a trade body focused on developers, and the government certainly also thought so at the time when it backed the setting up of TIGA. But convincing many developers why they needed to part with £5,000 or £500 a year to join a new organisation was no soft touch, even though they wanted it. The oft most quoted reaction was: “What? I can join IGDA for $50!”

What was needed was a campaign to gel the organisation and its potential membership to gel, and what could be better than lobbying to extend the film tax break to computer games? In one simple objective, it did a number of things. It said recognise us as part of a serious global industry with the potential to create serious jobs with serious skills, and be a major part of the future of entertainment, as well as giving developers the potential for drawing in their own funding.

After years of being looked down upon by the UK establishment, and accused of perpetrating all the worst evils of society, the ‘we don’t need any help from politicians nor anyone’ attitude was prevalent.

Although the industry was initially under the aegis of the DTI (now BIS), the film tax breaks were administered by the Department of Culture Media and Sport (DCMS) so that the first time we were to air our campaign objectives to government was in 2002, where Dr Kim Howells MP was the Minister allocated to speak to us. The delegation was Jason Kingsley, myself and, because relations with UKIE forerunner ELSPA were positive at the time, we invited its director general Roger Bennett along.

By then, no longer able to rely on domestic sales to return profits, due to the exponentially growing costs of producing console games, cracks in the global competitiveness of the UK sector were beginning to show – even though many in the industry refused to admit this.

Nevertheless, the pitch was along the lines of ‘we need this assistance to be able to compete globally and games are, after all, films cut up and made interactive, and if TV can also claim under the film tax break, why shouldn’t we?’

The answer was a curt ‘No!’. The department was smarting from the perceived abuse by accountants and TV companies of the new film break – for example, Coronation Street was apparently claiming tax breaks, and it was going to cost the Treasury a lot more than had been allocated in budgets.

But the reaction was not all negative, and we were alerted and encouraged to get involved in an impending R&D tax credit consultation, which it was suggested would be more appropriate.

A working group that included members of the TIGA board, and some outside bodies – such as Ingenious Media and media lawyers SJ Berwin, with experience of tax break models in film – got to work, culminating in a weighty tome being placed in front of the Treasury, complete with costings modeled by London Economics. This led to a meeting with the Chancellor himself in January 2004 and to much further work, including setting up seminars for the R&D tax inspectors to understand how a game was made and why so much of the process could be described as R&D – not an easy job convincing people that things with pretty (or not so pretty) pictures could be anything to do with R&D. Fred Gill put in some excellent work on this.

During this period, the impact of the Canadian tax breaks in Montreal were making themselves felt. At an Idate conference in Montpellier in 2005, I heard a Quebec official claim that 1,000 French developers had relocated to Montreal in the last six months (out of a total of about 5,000,), and soon the French government was mobilised to apply to the European Commission to allow a tax credit for video games. In Brighton, companies such as Babel started re-locating to Montreal – Eidos set up a studio there, too. These were the conditions for us to return to the theme of direct production tax breaks in the UK.

Looking back on this period, it’s hard not to conclude the government really didn’t have a clue.

Looking back on this period, it’s hard not to conclude the government really didn’t have a clue. On the one hand, they said tax breaks would never be allowed by the EU or WTO. On the other, they could not explain why the Canadians in Montreal were able to get away with it – and it was hardly just a measly tax break; it was 37.5 per cent of the cost of all new jobs created refunded in cash, plus a more lenient interpretation of R&D tax credits (we checked this with Canadian accountants Braithwaite’s, also working in the UK to claim R&D Tax credits), universities geared to provide trained graduates and tax breaks for non-Canadians relocating. The UK’s rankings in the global development league table was slipping from third behind the US and Japan, to sixth behind Canada, Korea and less surprisingly China.

And all the while publishers – except those that had joined TIGA to support the campaign – were still not in favour of a UK tax break, and to be fair nor were a few developers (for a jumble of reasons).

In 2005, a group of European games developer organisations inspired to form, by TIGA’s example, the EGDF (European Games Developers Federation) as a counter balance to the publishers organization ISFE, and we started lobbying and supplying information to the European Commission on various issues, including the possibility of a tax break for video games. In 2006, following the application by the French government for a tax break, the Commission invited us to a meeting to give evidence to the European Commission Competition directorate, where we declared our support for the French government’s application, on the basis that it did not distort competition, rather than redress the balance. If the Commission approved the French tax break, the DTI and Treasury could no longer turn round to us and say ‘It’ll never be allowed under the EU regulations’. We received signals and messages from both the EU and the French government that lead us to believe we had a good chance of succeeding.

In October of 2007, with the continued support of the BIS, we held a meeting of both trade associations with Ministers from UKTI and DCMS – entitled ‘Video games and globalisation’ – which for me summed up the complete and utter foolishness of UK government industrial policy at the time.

Both Ministers rejected the arguments for a tax break, one of them with cheap pompous jokes about the French. The other, in response to David Braben’s assertion that Canadian tax breaks were distorting the market, turned round to him and said ‘Well if its that good, why don’t you go there?’. Why the Financial Times reporter who was in the room never reported that, I will never know, but maybe it just goes to show that pre-crash Minsky-esque** hubris had also reached government!

(**a US economist whose long-ignored concepts for describing the processes leading to financial crashes, seem to be back on the agenda)

In response to David Braben’s assertion that Canadian tax breaks were distorting the market, one minister turned round to him and said: ‘Well if its that good, why don’t you go there?’

In December 2007, I got a call from a contact close to the French cultural Ministry. “The Commission are going to approve the tax break,” he said.

It was a heady feeling to be going into Christmas with, so I mischievously picked up the phone to my contact at the Treasury, who was always very helpful and even encouraging and after chatting a bit, said teasingly: ‘What are you going to say when the Commission allows the French Tax break?”

He replied: “That’ll never happen”. A week later the Commission announced approval of the tax break for a period of three years. In January 2008, I called him back without wanting to rub his nose in it, and said: “What do you think of the Commission ruling?” He said: “I don’t know, I have not read it – it’s all in French.”

In the ruling, the Commission cited the evidence given by TIGA, Game (German Dev Association) and EGDF in support. Against it, a document by a Spanish solicitors on behalf of ISFE.

A short deviation: With a possible referendum looming on EU membership, this anecdote, coupled with the previous meeting with Ministers, gives us an insight into a cavalier attitude to all things European by UK government and institutions. It makes me think that some of the EU regulations and laws ‘imposed’ on us and that we love to hate may well be down, in some part, to these attitudes. (Don’t get me on the subject of the interpretation of EU contract tendering laws!)

Asked by a couple of people why I was stepping down from TIGA role in February 2008, someone out there knows (I can’t remember who it was) I replied flippantly: “Because I’m going to bop a minister on the nose if I don’t!”

We’ve won the battle – let’s keep the pressure on for support and measures to win the war: building sustainable British companies, no accounting scams to stretch the intent, and no fundamentalist interpretations of European regulations by government institutions to restrict the intent.

Fred Hasson was founding CEO of TIGA, 2001 to 2008 and founding chairman of European Games Developers Federation (EGDF) 2005-09.