The digital games industry in Dundee was dealt a major blow yesterday after the European Commission ordered an investigation into the proposed introduction of a tax relief in the UK.
The allowance was originally announced by Chancellor George Osborne during his 2012 Budget address and was due to come into force on April 1 this year.
However, that deadline passed after the EC failed to grant approval for the measure and it emerged yesterday the Brussels-based Commission has now moved to open a formal investigation into the case for games tax relief (GTR) in the UK.
Developers in Dundee and elsewhere across Britain had been pinning their hopes on the allowance levelling the playing field for UK studios in Britain, forced to compete against rivals in countries like France and Canada where the tax environment is more advantageous.
Trade industry body Tiga said the EU probe was a bitter blow, but the industry had to demonstrate the need for it.
Chief executive Dr Richard Wilson said: The EU Commission’s decision to launch an investigation into the case for GTR is a very disappointing hold-up which, if prolonged, could jeopardise much-needed investment and job creation in the UK’s games industry.
“Yet this is a delay, not a defeat, in Tiga’s five-year campaign for GTR. Both the French video games tax relief and the UK’s film tax relief were also subject to an investigation by the EU Commission before they were introduced.
“The UK games industry needs to surmount one final hurdle before GTR can be enacted: we must make a compelling, convincing and constructive case to the EU Commission of the merits of GTR.”
Dr Wilson said the situation had led to a significant brain and investment drain from the UK games sector.
He said: “Limited access to finance has a negative impact on the supply of capital for the production of British video games.
“Many of our key overseas competitors benefit from tax breaks for games production The UK does not, and so investment has been diverted away from the UK.
“Additionally, creative businesses such as games development studios, find it harder to raise finance in comparison to non-creative businesses. This is partly because of a lack of collateral, and the intangible nature of intellectual property. GTR addresses these challenges.”
A spokesperson for the Treasury said: “The Government remains committed to introducing video games tax relief as soon as possible and is working with the industry to provide the commission with the evidence it needs to address its concerns and conclude its investigation quickly.
“It is not unusual for cutting-edge state aid measures to be subject to close scrutiny, but the UK has a long history of working with the commission to implement innovative forms of state aid successfully.”