Ireland: Digital gaming tax credit, overview

Possible options for Irish digital gaming tax credit

Possible options for Irish digital gaming tax credit

Ireland’s digital gaming tax credit is expected to be effective beginning from 2022. 

What is “digital gaming”?

Digital gaming describes using PCs, consoles or portable devices to play software-based games. The field of digital gaming covers a broad array of different game types and delivery methods.

Traditionally, digital games were almost exclusively sold as playable entertainment products, but over the years, as the field developed and technology advanced, digital gaming has become ubiquitous in a range of industries, from digital marketing to gambling.

Background of the digital gaming tax credit

Digital gaming tax credits are tax-based incentives targeted at a creative industry and designed to encourage growth of the digital gaming sector. These credits have been in existence for a number of years in various countries (such as France, Germany, Canada, and the UK). While the core principle of the credit is to encourage economic growth in the sector, the specific implementation, level of incentivization, and qualifying criteria vary from jurisdiction to jurisdiction. 

Possible options for Irish digital gaming tax credit

Ireland could follow other jurisdictions that have implemented a digital gaming tax credit, and if so, some believe it could be a regime similar to (but perhaps more attractive than) the regime in the UK. 

Classic model

Incentive

  • >20% - 30% of total core expenditure as a tax credit against corporation tax
  • > €1 million equivalent per game subcontractor core expenditure

Qualifying conditions

  • Percentage of core expenditure must be spent in Ireland or another European Economic Area (EEA) country
  • List of qualifying activities (development, etc)—the eligibility/cultural significance of a game could be verified by an appropriate body like the Irish Film Institute

Cultural test

There are two potential options for the cultural test:

  • Selection or creation of a third-party certification board and adoption of a cultural test to qualify titles as culturally significant

or

  • Removal of certain aspects of the cultural test resulting in reduced overheads, while still confirming that the game is predominantly developed in Ireland or the EEA

A new approach

Alternatively, Ireland may use the new digital gaming tax credit to attract sub-sectors of the gaming industry that fall between the cracks of some of the existing regimes. A key differentiator could be in the way claimable activities are defined.

In a traditional video game tax credit format, credit is granted on a “per title” basis, meaning that each game title is claimable. For example, if a video game developer develops three games, all three games would be claimed separately on condition that they meet the cultural test and other qualifying criteria.

However, the “per-title” claim system overlooks many sectors of the digital gaming industry, for instance, work on the development of critical supporting systems, like low latency servers, gaming hardware and anti-cheat systems are not claimable. Rather than a “per title” basis, pivoting to a “per project” basis would be significantly more attractive to a larger number of companies involved with digital gaming.

Per-project basis

Incentive

  • >20% - 30% of total core expenditure as a tax credit against corporation tax

Qualifying conditions

  • Certain percentage of core expenditure must be incurred in Ireland or the EEA
  • Project must contribute to the improvement/development of the digital gaming industry as defined in a list of “qualifying activities” 

Read a September 2021 report prepared by the KPMG member firm in Ireland

Other tax credits discussed in this KPMG report concern:

  • France’s tax credit for video games
  • Germany’s development tax credits for the games industry
  • Ontario’s (Canada) interactive digital media tax credit
  • United Kingdom’s video game tax relief

 

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