“Game-On” for the Digital Gaming Tax Credit but we have to wait on EU approval

Tom Maguire discusses the Digital Gaming Tax Credit in his Business Post column

Things sure have changed since Pac-Man. Once again I show my age in this column but we have come a long way since we were first seduced by the maze-navigating dot-chomping quasi-emoji. This is especially the case when you consider that certain commentators expect the Global Games Market to surpass $200 Billion in 2023.

The Minister for Finance said at the Finance Bill’s Committee stage that this is a sector in which Ireland could be better. He referenced the strengths Ireland has in animation and, more broadly, in the digital sector, such that “the ingredients are there” for Ireland to do better.

Earlier this year, the Tax Strategy Group (TSG), a government think tank chaired by the Department of Finance, noted in one of its published papers that Digital Gaming is a sector that has seen exponential global growth in the past decade. The group noted that “employment in the sector in Ireland has not matched this global trend and has decreased in the last ten years. In terms of the introduction of a tax credit for digital games, there are potential synergies to exploit with our established film and animation sectors, to support quality employment in creative and digital arts in Ireland”. As Churchill famously said “Give us the tools, and we will finish the job”; hence the Digital Games Tax Credit or as I call it “Game-On” in this year’s Finance Bill. The Finance Bill has now been passed by Dáil Éireann.

The Minister for Finance explained at the Finance Bill debates that Game-On’s aim is to provide an incentive to digital games developers to produce digital games that contribute to the promotion and expression of Irish and European culture. The relief will take the form of a corporation tax credit which is available to digital games development companies. The rate of the credit will be 32%, available on eligible expenditure of up to €25 million per game. The credit will be available on expenditure incurred in the design, production and testing stages of the development of qualifying digital games, provided certain conditions are met.

Here’s the science bit. A “digital game” is defined in the Finance Bill as a game that integrates digital technology and incorporates not less than three of the following in digital form: (i) text; (ii) sound; (iii) still images and (iv) animated images. Further, it’s to be capable of being published on an electronic medium and is controlled by software enabling the person playing the game to interact fully with the dynamics of the game, including by providing feedback to the person, enabling control over elements of the game by the person and allowing the person to adapt elements of the game.

Minister Donohoe summarised the relief by noting that “In order to be eligible, the qualifying expenditure must be not less than €100,000. Games produced solely or mainly for the purposes of gambling or advertising will not be eligible for the relief. The relief will be a cultural one for state aid purposes and, therefore, a cultural test will also apply. In order to claim the credit, a company must first apply for cultural certification as a qualifying digital game to the Minister for Tourism, Culture, Arts, Gaeltacht, Sport and Media. An interim cultural certificate may be applied for at any point before or during the development of the digital game and will only allow relief to be claimed annually in respect of qualifying expenditure.”

He continued that “On completion of a digital game, the company must apply for a final cultural certification and claim any balance of the credit due. As part of the certification process, a digital games development company will be required to sign an undertaking of quality employment. As already stated, the relief will constitute a state aid and, accordingly, must be notified to and approved by the European Commission prior to commencement. Accordingly, it is being introduced subject to a commencement order. The scheme will run until 31 December 2025”.

On that EU point the TSG noted that “The State aid notification process and the legal basis underpinning the notification serves to inform some of the parameters within which the incentive can be designed”. But EU approval is necessary. The Minister was asked about that whole process at Committee Stage, and he said that as the relief was being developed “we looked closely at equivalent reliefs in other EU jurisdictions and we modelled it on our own section 481”. The latter being our film tax relief which is up and running and has been successful in the past. Minister Donohoe explained that he expected the “the overall procedure for gaining that approval could take 9 to 12 months” but once approved it will be Game-On.

When companies are looking at tax reliefs the necessary international comparisons will be made. The Minister explained that Game-On is comparable to the situation in France noting it “has a rate of 30%, while ours is 32%. The rates in the UK are between 19% and 25% but it does not have a maximum claim. Our 32% rate compares really well to our fellow EU members but it also has the quality of being the same rate that we charge under section 481. I thought it important that there be consistency between it and the rate for the audio-visual sector. I think it is competitive and I hope it will yield gains and employment here in Ireland”. You can see his point with the “here’s one we did earlier approach”.

The attractiveness of this relief is critical to its success. Paul O'Neill, former U.S. Secretary of Treasury, once said "go find someone who says they'll do more R&D because they can get a credit for it, you'll find a fool". Replace the expression R&D with digital gaming and you can get the gist. Because of the human condition, R&D “will” happen, but the R&D tax credit regime is a factor in determining “where” R&D is managed and so it is with the Digital Gaming sector as it continues to grow. It’s up to us to make sure that sector can grow “here” and we’re making the right moves with Game-On.

Please note this article first featured in the Business Post on 12 December 2021 and was re-published kindly with their permission on our website.

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