The European Commission has decided to fully investigate the proposed tax credit scheme proposed by the UK Government, meaning further delays before its possible introduction.
The investigation will be to ascertain several things, with particular focus being on whether there's "an obvious market failure in the UK games industry", and even whether the industry needs the tax relief. They'll also investigate to see if it might lead to unfair competition and a possible subsidy race with other Member States.
The Commission's Joaquin Almunia stated: "It is not clear whether the taxpayer should be subsidising this activity. Such subsidies could even distort competition."
Ukie CEO, Dr Jo Twist, commented on the decision by saying: "We are extremely disappointed that the European Commission has decided to open an in-depth investigation into production tax credits for the UK games industry."
"We believe this support is crucial in opening up the opportunity for developers to make culturally British games, 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."
"The UK games industry needs tax breaks in place in order to be able to compete with other territories and to be able to grow to its full potential. One of the key questions that the Commission is asking is whether there is an obvious market failure in the UK games industry. We shall be gathering evidence to show that British games, being created by British games businesses, are not being made in significant enough numbers for the UK industry to compete globally."
The tax breaks were originally announced last year's Budget, and confirmed just last month. Along with tax relief, the Government proposed the introduction of a £15 million digital competition via the Technology Strategy Board and an £8 million increase in the Skills Investment Fund.
The European Commission's investigation now casts doubt as to whether the proposed initiatives will be put in place, with developers up and down the country now waiting with baited breath for the Commission to hand down their judgement.