The digital games tax credit (“DGTC”) aims to emulate the success of the Section 481 film tax credit, which has helped Ireland establish itself as a leader in the film industry.
Ireland is already a base for many large international gaming companies and has seen strong growth in the indigenous gaming sector in recent years.
“I believe this credit will be instrumental in replicating such successes in the digital gaming sector. The introduction of this credit will ensure that Ireland is competitive in an industry estimated to be worth up to €260 billion.” – Comments from Minister Pascal Donohoe at a recent launch event for the Digital Games Tax Credit.
What is the digital games tax credit?
The DGTC is a refundable corporation tax credit of 32% on the spend of qualifying digital games made by qualifying digital game development companies.
Who can claim the digital games tax credit?
The credit is available for qualifying “digital games development companies” (DGDC).
A DGDC must be a company wholly or principally trading in developing digital games on a commercial basis with a view to making a profit.
A “digital game” has to be controlled by software enabling the person playing the game to interact fully with the game’s dynamics, including providing feedback to the person, enabling control over game elements by the person and allowing the person to adapt aspects of the game.
How to claim the digital games tax credit?
A DGDC must apply for a cultural certificate from the Minister for Tourism, Culture, Arts, Gaeltacht, Sport and Media.
Once a certificate has been received, the DGTC is claimed by amending the most recently filed Corporation Tax Return (CT1).
Practical issues with digital games tax credit
While the support for the digital gaming industry is welcomed, the legislation as currently enacted may not achieve the full impact it deserves.
The persons liable to any clawback of the DGTC are:
- the DGDC,
- any director of the DGDC, or
- each person able directly or indirectly to control more than 15% of the ordinary share capital of the DGDC.
These extended clawback provisions mirror the section 481 film tax credit legislation. However, as the film tax credit can be claimed in advance of expenditure being incurred, there is justification for the extra security required if the incorrect amount is claimed. In the DGTC, expenditure is incurred by the claimant prior to claiming the credit. Similar to the DGTC, the R&D tax credit operates on an expenditure incurred basis, yet unlike the DGTC, the R&D tax credit legislation contains no personal clawback for directors and shareholders if an incorrect amount is claimed. Despite this key difference between a film tax credit and DGTC legislation, the same clawback provisions have been used in both.
Another potential issue with the DGTC is the requirement for completion and public availability. To be an “eligible digital game,” it must be completed and made publicly available. Unlike the film industry, where almost all films and TV series are completed and achieve some form of release once work on them commences, it is industry practice that digital games often get discarded in production. This leaves DGDC only able to claim the DGTC on the proportion of the spend relating to fully completed projects. Up to 80% of digital games are never completed, this could lead to DGDC only being eligible to tax relief on as low as 20% of their overall spend.
If you would like to know more, further detail on the DGTC is available on our website.
If you have any questions in relation to the above, or if you would like to discuss this topic further, please contact a member of the Mazars corporate tax team below: