EU Investigates French Developer Tax Breaks

French news agency AFP is reporting that European Union (EU) regulators are to open an investigation into whether proposed tax breaks for the French video games industry are illegal, according to EU rules.

The proposal would see French companies benefiting from a tax credit worth up to 20 percent of the cost of producing a video game, providing that it was an adaptation of an existing work of European origin or that it passed a government test of quality, originality and contribution to the expression of “European cultural diversity and creativity”.

The European Commission will try to determine whether the proposed tax credits for the French developers and publishers distorts EU competition or, as the French government claims, promotes cultural projects. EU laws allow individual states to promote culture only as long as they do not harm competition and trade between member states.

"We must be sure that the measure will promote only genuine cultural projects and that it will not have the effect of an industrial policy instrument in favor of the video games sector," Competition Commissioner Neelie Kroes is quoted as saying.

The French games industry enjoys a worldwide influence significantly larger than its modestly sized local market, including major publishers Ubisoft and Infogrames (the parent company of Atari). Individual developers have been less prominent in recent years though, after the demise of studios such as Adeline Software International (now No Cliché), Cryo, and Kalisto, as have games with an overtly French theme and artistic style.

In order to combat this decline, the French government initiated a set of measures in 2003 aimed at maintaining and developing its local games development community. Amongst other measures, this involved the formation of developer trade group Association des Producteurs d'Oeuvres Multimedia (APOM).

At this stage several educational and training initiatives were also proposed, along with the tax credit system currently under review. Such direct intervention from central government is unusual in the West, with only isolated U.S. states offering tax incentives for local developers.