Despite its earlier tough talk, the U.K. government has admitted that tax breaks for videogame developers in Canada don't actually violate any WTO regulations and that it has "no legal grounds" upon which to pursue the matter.
All the way back in 2007, Margaret Hodge, the U.K. Minister for Culture, Media and Sport threatened to pursue a complaint with the WTO over government policies in Canada that gave significant tax breaks to developers that establish studios in the country. For its part, the Canadian High Commission said that it was willing to discuss the matter with the U.K. government but that it was confident the Canadian government was playing by the rules.
Turns out it was right: Gamasutra says the U.K. government now admits that there are no WTO rules on such subsidies and therefore, no complaint can be made. ""Last year the Government said that the UK via the European Union would take legal action against Canada if its support for its videogames industry violated WTO rules," said Richard Wilson, CEO of European videogame trade association Tiga. "We now know that there are no legal grounds on which to lodge a complaint."
Tiga has been calling for similar breaks for U.K.-based developers since before the government suggested it would pursue the matter with the WTO; at the time, Minister Hodge said it was "unlikely" the government would do so, but with this avenue now closed the group is once again raising the issue of increased support for game developers.
"Just as Australia, Canada, China, France, Singapore, South Korea and some American states help their games industries to grow through extensive tax breaks, so the U.K. government should back our games industry with a tax break for games production," Wilson said. "If you can't beat them, join them."
He claimed that a 20 percent tax break for developers would result in an additional $317 million investment in the industry, as well as the creation of up to 1600 jobs. "The government stands naked before the games industry, bereft of a credible fiscal policy with which to support the sector," he said. "This measure would cost HM Treasury £150 million ($216m) over five years - a fraction of the recent £100 billion ($144bn) taxpayer bailout of the UK banking system."
Making threats against other countries rather than supporting its own industry always seemed a bit wrong-headed to me, and with this news it looks even more like the government is trying to dodge, rather than address, the issue. But supporting its industry only makes sense; the success of Canadian studios notwithstanding, the U.K. recently moved past Japan to become the second-largest software market in the world. Videogames are big business, and failing to support its growth - and to get a piece of the action in the process - is a mistake.