EU Commission raises doubts over UK games tax relief, launching investigation

The European Commission announced an impending "in-depth investigation" into the UK tax relief for video games following doubts regarding its necessity. The breaks, announced last year by the UK government, are set to provide 25 percent tax relief on 80 percent of qualifying games' budget spent in the UK, a move long demanded by the country's ailing games industry. However, today's news raises serious doubts over whether or not they'll be implemented, with the EU Commission noting a number of concerns over the scheme.

The European executive body not only doubts if the relief is needed to boost the country's games industry, but also noted the potential for positive discrimination towards "goods or services 'used and consumed' in the UK," as well as a "subsidy race" between EU states. The Commission also raised concerns over the proposed UK cultural test and whether or not that would produce "unique distortions of competition."

"The market for developing video games is dynamic and commercially promising," said EU Commission VP of Competition Policy Joaquin Almunia. "It is not clear whether the taxpayer should be subsidizing this activity. Such subsidies could even distort competition."

UK gaming trade body UKIE says it's "extremely disappointed" with the EU Commission's decision. In a response, UKIE noted such an investigation could delay the aid's implementation even if it was eventually approved.

"We believe this support is crucial in opening up the opportunity for developers to make culturally British games," said UKIE CEO Dr. Jo Twist, "But also as a vital incentive for development studios and large multinationals to base their development in the UK and nurture the talent here. We are still confident of having the scheme introduced and are fully committed to having it in place as soon as possible. A similar investigation into the French games tax relief system was successful but this took 12 months to conclude."

While a recent report by UK trade association TIGA indicated some signs of recovery for the country's games industry, 2012 saw Wipeout team Studio Liverpool and 007 Legends dev Eurocom both close, as well as high street retailer GAME suffer financial meltdown.

This article was originally published on Joystiq.