A practical guide to the EU’s new VAT rules, video games and digital content sales

So, what’s happening?

From 1 January 2015, new EU tax rules will require value added tax (VAT) to be charged on paid digital content (like video games, apps, digital music and video) at the VAT rate of each EU country where its customers are based.

How is this different to the existing system?

Previously digital businesses could charge VAT across the whole EU based on the country where its business was located (e.g. a UK business could in principle charge VAT of 20%, being the UK’s VAT rate).  Now, in principle they will have to use up to 27 VAT rates (one for each EU Member State) if they fall under the new rules. Continue reading A practical guide to the EU’s new VAT rules, video games and digital content sales

The UK now has a video games tax break

At long last, the EU has approved the UK’s video games tax break, a move which signals fundamental changes in the way that games are made in the UK, EU and beyond.  Personally, I’m very glad to be able to write that sentence; longtime readers will know I’ve been writing about the UK’s twists and turns on this matter since 2009!

You can expect to see lots more information and insight about the UK video games tax break on this site in the future.  For now though, here’s a quick guide to the UK video games tax break written by my colleague Paul Gardner and me together with UK interactive entertainment industry association Ukie. Continue reading The UK now has a video games tax break

The games tax break doesn’t mean Grand Theft Auto: Weston-Super-Mare!

Earlier today I wrote a quick update on where we are with the UK games tax break.  A few well-intentioned Twitter followers of mine immediately joked that games being required to go through a ‘cultural test’ to gaint the tax break would result in red telephone boxes throughout games, etc etc.

This is a bit like the Guardian’s Charles Arthur’s joke that the games tax break might lead reducing Grand Theft Auto games to using British provincial towns like Weston-Super-Mare instead of New York etc.  All of which shows a fundamental misunderstanding of how the cultural test will work – a mistake which, albeit understandable, is so pervasive in the industry I thought I’d write a quick post about it specifically. Continue reading The games tax break doesn’t mean Grand Theft Auto: Weston-Super-Mare!

The UK games tax break – a quick update

It’s been a while now since the UK government made the surprising but welcome announcement in March 2012 that it would introduce a tax break for the games industry.  What’s happened since then? 
Consultations, consultations, consultations… 
The government announced that it would hold a consultation process with stakeholders, to be split into two parts.  The first, run by HM Treasury, would be a discussion of the overall structure and qualifying conditions of the tax break and the second, run by the Department for Culture, Media and Sport (“DCMS”), would be about the ‘cultural test’ aspect of the tax break.  More below…  Continue reading The UK games tax break – a quick update

Project finance and public funding in games

UK games industry body UKIE invited me to speak at their inaugural Thursday@3 series of events last week.  This first event was on the subject of funding games, so I decided to talk about two areas of games finance which have been much underrated recently: project finance and public sources of funding.  

Have a look at my slide-deck below (which newsletter recipients can see here).  Both topics (project finance especially) could easily eat up several hours of discussion on their own, but hopefully this gives you a brief idea about how they work and how they could help… Continue reading Project finance and public funding in games

The UK games tax break: opportunities and challenges

The UK government has just announced that it will grant production tax breaks to the games industry.  This was a bit of a surprise: the previous Labour government had agreed to grant tax breaks, but the new Tory/Lib Dem coalition government had frowned on it until this announcement.
This is ofc great news for the UK games industry and I’m sure there’ll be a LOT of discussion about it in the coming days.  There’ll need to be: there are a number of challenges to overcome over the next several months before games businesses can take advantage of a UK games tax break.  I wrote about those challenges the last time a games tax break was approved, and they still hold true now: Continue reading The UK games tax break: opportunities and challenges

Crowdfunding is amazing

I’ve been thinking about crowdfunding for a while, and I was generally aware from industry stories and client experiences that it is an interesting way to get funding for games.  Besides which, I’m interested in how best to make it work legally (more on that later).  Then I was asked today to look into some notable examples of crowdfunding for games.  5 minutes into a Google search on the subject blew me away and I felt I should share some of what I found with you. 

The 2011 UK Budget and the games industry

The UK Government has just published its 2011 budget, which contains a pretty mixed bag for the games industry.  This is what my colleague Cliona Kirby of Olswang had to say about it:

“A lot of mixed messages in today’s Budget for the games industry.

The proposal to significantly improve EIS and VCT reliefs, in particular, by increasing the annual investment limit to £10 million from £2 million (albeit with effect from 6 April 2012) should assist games companies in obtaining development finance. EIS relief becomes much more interesting at this level. We are currently lobbying for other beneficial changes to make the rules more flexible. Similarly, the increase in Entrepreneur’s relief from £5 million to £10 million may persuade business angels to invest in games. Perhaps the changes announced today will go some way towards improving the funding gap and enabling games companies to retain their valuable intellectual property. But more is needed here – a meeting of minds between the games developers and VCs/business angels.

Whilst the changes to the R&D rules to increase the SME scheme rate of R&D relief to 200% from 1 April 2011 and 225% from 1 April 2012 will be welcomed, we would like to have seen further simplification in the claims procedure and an extension of the definition of qualifying spend to apply to more games development expenditure.

Disappointingly, there was no extension of the patent box to apply to games companies (although a further consultation paper is expected in May). Whilst we can understand that extending the patent box to apply to all IP may be too costly for the UK, we would favour an R&D or “innovation” box enabling games companies to benefit and to encourage them to hold their IP in the UK. As ever, due to our previous lobbying, we would have welcomed a targeted games tax relief but it seems that the Chancellor has for now not changed his view that this is “poorly targeted”.”

So, no games tax break for the foreseeable future, but indirect tax measures focused at the tech sector generally should help the games industry.  No doubt this won’t stop the calls for a full-on games tax break, but in the meantime hopefully these new measures will help the industry’s bottom line…

Image credit: Guardian

Follow us at http://www.twitter.com/gamerlaw or subscribe to our email updates here

US developer sues Michigan over games tax break

Here’s an interesting angle on the games tax break debate: a US developer is suing two branches of the state of Michigan for denying his application for a gamex tax break (via Detroit Free Press)

Nathaniel McClure, CEO of developer Scientifically Proven, said that he moved his company to Michigan to take advantage of its 42% games tax credit, which was introduced in 2008 (although apparently not a single developer has yet to benefit from it).  However, the State offices overseeing the tax credit (the Michigan Film Office and the Michigan Department of Treasury) refused Scientifically Proven’s application on the basis that it did not have overall control of the IP in the game it is developing, Man vs Wild.  Rather, they argued the IP was controlled by the publisher.  Cue lawsuit from McClure (presumably for both a change in the state’s position as well as for compensations/damages).

So, why is this interesting? 

(1) It goes to show, once again, that control of IP is a critical issue in designing a games tax break.  The tax break draftsmen need to think carefully, and the games industry needs to be clear itself, on who should obtain the games tax break and whether it should depend wholly or partly on control of IP.  (Although clearly ofc that will not be the sole test – there would also have to be a range of financial tests etc).

If and when the UK (or any other European) government decides to back a games tax break again, this point would need to be considered as carefully as the ‘cultural test’.

(2) Do the employees or officers themselves have the right to challenge aspects of the games tax break?  The original Detroit Free Press article suggested that McClure might be suing the state himself, which seems a little odd to me – on what legal basis could he argue for compensation from the state based on its refusal to grant a tax break to his company?  The obvious cause of action is the company against the state.  But, given the propensity of litigants to start as many lawsuits as possible when there is money at stake, I wouldn’t be surprised if we did actually see personal lawsuits over tax breaks (US/Canadian readers, have you seen anything like this?)

Follow us at http://www.twitter.com/gamerlaw or subscribe to our weekly email newsletter here

UK govt snubs games tax break…again

David Cameron, the UK Prime Minister, has managed to snub the games tax break once again but failing explicitly to answer a question put to him in Prime Minister’s Questions as to why his government had failed to implement the tax break (thanks to Develop for this one).

Dundee MP Jim McGovern (Labour) asked Cameron to explain why, in the emergency Budget last month, the Chancellor George Osborne had (infamously) described the games tax break as “poorly targeted”. Cameron sidestepped the issue altogether and talked about the reduction of corporation tax instead.  He said:

“We believe that what matters is having low tax rates, and what we did in the Budget – which the House voted on last night – was to cut the small company rate of corporation tax back down to 20p from 22p and set out a path for getting corporation tax down to 24% by the end of this Parliament…That would give us one of the lowest tax rates in the G8, the G20 or anywhere in Europe. That is what we will benefit from, but I note that the Labour party voted against those tax reductions”.

That’s unfortunate. It doesn’t seem to bode particularly well for the games tax break (or the games industry for that matter) if Cameron couldn’t even be bothered to pay lip service to the UK games industry. What a wasted opportunity. Still, kudos to McGovern for raising the question.