The UK is introducing tax relief for the animation, high end TV and video games industry from 1 April 2013. The relief would amount to a 25% tax reduction based on 80% of the production budget of a qualifying animation or video game relating to goods or services used in the UK, subject to certain cultural criteria being met. This creative industries tax relief is an extension of the existing tax relief for the film industry; however it is subject to approval by the UK parliament and by the EU under the state aid provisions.
The UK submitted state aid notifications to the EU and the European Commission has now opened an in-depth investigation into the proposed tax incentives. Under the EU treaties, state aid intended to promote culture and heritage or promote particular economic activities must not have a negative effect on trading conditions and competition within the EU. The Commission will look at whether the tax relief is necessary to stimulate production in the industry and will look at the effect on competition of the cultural criteria attached to the tax relief. The restriction of the relief to expenditure on goods and services consumed in the UK may be discriminatory in nature and this will also be considered in the investigation. The European Commission considers that the market in the video games industry is dynamic and growing, and will look at the issue of whether the tax relief offered by the UK may give rise to competing subsidies in other member states.
