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 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

Thoughts on the Westminster eForum

The Westminster eForum discussion in London on 20 January 2010 went over a lot of ground, from digital distribution to games education to tax breaks. UK games classification got a special mention, with Keith Ramsdale of EA Northern Europe making a special plea to the government to “just hurry up and make PEGI law” (the current UK games rating system is being reviewed at the moment and may or may not become law before the next election).

It was well attended by industry figures, including David Braben (of Elite fame) and Ian Livingstone of Eidos as well as representatives from EA, Codemasters and Unity to name but a few. Also attending was gaming champion Tom Watson MP (Labour), who chaired the first half of the session, and Ed Vaizey MP (Conservative), the Shadow Minister for Culture and the Creative Industries.

My thoughts on the highlights below…

Tax breaks

There was a lot of discussion about the need for a tax break for the UK games industry. Richard Wilson of TIGA in particular put forward a strong argument for the tax break (and separately Mike Rawlinson of ELSPA has done the same). Keith Ramsdale of EA Northern Europe argued that last year games made 44% more than films and music put together, but attract far less government support. Overall, the consensus was that the UK games industry punches above its weight, but without government tax breaks to match those being offered in competitor countries like France and Canada, it will decline (some predict that the UK will drop from its current place as the third-largest producer of games to sixth in the coming years).

There was also an interesting presentation from Dustin Chodorowicz of Nordicity regarding the Canadian experience of games tax breaks and the lessons the UK could learn from it. Unfortunately, with the present Labour government having refused a games tax break in this term, and Ed Vaizey’s rather blunt assessment that a future Conservative government would not introduce a games tax break in the next 2-3 years, all of this will have to remain on the backburner for a while to come.

Digital Distribution

The discussion about digital distribution was interesting, if not ground-breaking. The discussion ranged back and forth regarding the pros and cons of digital distribution, the consensus from the industry bods on the panel being that digital distribution would continue to expand rapidly in this and coming years, but there will still be a place for the retail market for some time to come.

One crucial issue which wasn’t discussed at all though is the secondary market in retail games and the total absence of a secondary market in digital distribution (or, put simply, I can buy Half Life 2 boxed second hand but I can’t buy it off Steam second hand). There is a lot of money to be made in second hand sales – for example, the UK’s only games retail chain GAME reported in 2008 that fully a quarter of its income derived from second hand sales.

All of this fundamentally derives from (i) gamers wanting to play games but not wanting to play full whack for them; and (ii) gamers wanting to make some money back from games they have played but don’t want to keep. So it seems likely that sheer consumer demand will mean that at some point a secondary market in digitally downloaded games will have to develop. Obviously though, this presents real commercial issues (why allow a digital game to be sold secondhand online for $10 when you can sell it firsthand online for $30?) – so whether or not a digital second hand sales market will survive is another question altogether.

In fact, there have already been a few isolated instances of gamers trying effectively to establish their own second hand market in digitally downloaded games (for example, last week
a guy tried to sell his Steam account for $1,000), but they are pretty much doomed to failure as long as download platforms stick to their current legal structure in which they can stop and unwind any attempt to sell to someone else any games downloaded them from.

It seems to me that the change could come in one of two ways. Firstly, a legal challenge against the Terms of Service/Subscriber Agreements that the current download platforms make gamers agree to at the outset, on the basis that such contracts contain numerous unfair contract terms which should be struck down by the court (which I’m going to blog about separately). Secondly, and probably more likely, someone figures out a new model for profiting from digital second-hand sales and make a popular download platform out of it.

Games education

The discussion regarding games education was also interesting. The consensus from industry figures in the panel discussion was that the UK’s universities are not doing enough to prepare students for entry into the games industry. For example, David Braben of Frontier complained “we are getting far fewer people with computer science skills. We’re having to recruit people from abroad” and Ian Livingstone of Eidos worried that university courses have “dumbed down” recently (a constant refrain in UK papers for some time now).

But there were no figures from the education establishment on the panel to respond to those complaints. If there had been, I think they would have said that the issue is complicated and affects multiple industries, so a simple claim that universities don’t do enough isn’t particularly productive. But one big problem which does affect the games industry specifically is the perception among universities that universities simply don’t take games-focused courses seriously (according to one university lecturer who I spoke with) . That, it seems to me, is something that the games industry can and should help to remedy. (Clearly there is enough for a forum discussion on this issue alone!)

And, yes, Keith Vaz didn’t show up

Lastly, and most infamously, there was gaming opponent Keith Vaz MP’s no show. More on that here.
All in all, a great session, and I look forward to the next gathering on Monday 25th Jan at the Houses of Parliament for “Taking Games Seriously”…

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Commentary: More Eve shenanigans

A couple of more interesting Eve-related stories (as recently reported, Eve is an interesting place for games lawyers).

Yet more theft in Eve

First up, Massively reports that CCP Games have announced, breaches of the rules governing their Volunteer Program.  The Volunteer Program consists of gamers who give of their time to help out CCP and fellow Eve gamers.  Quote from Massively:

“The Volunteer Manager for EVE Online, CCP Ginger, explained the situation earlier today: ‘Last weekend external resources related to the Interstellar Services Department (ISD), EVE’s volunteer program, were compromised which led to the theft of some volunteer program related data but also information about specific volunteers. As a result, we are being extra careful here, as this first and foremost pertains to the volunteer program and has no effect on our EVE Online operations or any customer data whatsoever’ “.

CCP appears to be tight-lipped as to exactly what was stolen, although they stressed that personal and account information remains safe.  Watch this space…

More generally, and as we’ve discussed previously on this blog, Eve is a brilliant example of gaming imitating life, in this case by the theft of information  – which, in the real world, may have been private and/or confidential and accordingly would be protected (at least in England and Wales) by the common law as well as statute (for example, potentially under the Data Protection Act 1998).  Unfortunately, Eve has no such systems of legal protection…yet.

Eve may implement a taxation system

Another one courtesy of Massively.  CCP has said it is considering implementing a partial taxation system within Eve.  Specifically, players who are members of NPC corporations (i.e. corporations provided by CCP, rather than player-created corporations; for corporation essentially read ‘alliance’) will be taxed on certain income.

Now, this is really very interesting indeed.  CCP’s objective appears to be to use taxation to nudge players from out of the safety of NPC corporations (which are relatively matronly, comforting institutions) into the wild chaos that it is player-corporation Eve.  To an extent, tax isn’t anything new to Eve because player-corporations already operate very rudimentary tax systems – the revenues from which are then used to fund the corporations’ activities.  But what is new is that now CCP itself is wading into the action and on a far larger scale.  This raises all kinds of potential issues – here are some of our thoughts:

(i) How is the principle going to be turned into practice?  Modern tax systems in the real world are immensely complicated, featuring roles on taxable  and non-taxable income/capital gains, exemptions and reliefs.  More or less, this complexity is needed because taxation is a complicated activity – it is not fair to just slap an arbitrary tax upon everyone with no exceptions.  If CCP implement this seriously, then at some point they are going to need a tax code.

(ii) What is going to happen to all that revenue?  The NPC Corporations which will gather them don’t need it, because they are emanations of the Eve God.  They could literally just delete the money as soon as it is received and not suffer for it.

(iii) What will the economic cost of imposing a general taxation system be?  No doubt Eve’s resident economist will step to the fore on that one.

More interestingly from our perspective, this is a great example of the slow creep of MMOs towards creating quasi-legal systems to govern the relationships of gamers between each other and with the Devs.  In this case, CCP is not creating a taxation system because they need to raise the money in game, but because they think it will improve the game experience.  That sets a very interesting precedent.  It may sound far-fetched now, but that same justification could be used to set up property laws, health and safety laws, even criminal laws in a game in the future…