Game developers flee UK for Canada, tax breaks

Gaming, as an industry, has become an economic powerhouse. The growth of the industry in the US is exceeding the overall growth of the US economy, and is in fact a bright spotin an otherwise dour picture of the nation's finances. Game developersare creating a product that is doing very well in even the worldwidemarket, and where these companies set up shops, jobs and cash follow.Developers in the UK are now pressuring the government to step up taxbreaks for the gaming industry, and they're wielding a very real stick:developers have already begun to flee for the greener pastures ofCanada.

15 game companies have joined a lobbying group called "Games Up?" tofight for better benefits in the UK. "All our key competitors offer taxbreaks and grants, putting UK developers at a disadvantage," saidRichard Wilson, a chief executive of Tiga, the UK trade organizationfor game developers.
Tiga argues that these tax breaks would, in the long run, help the UK.The organization "cited figures by Games Investor Consulting thatsuggested if its proposals on skills and tax credits were implemented,the British games industry would receive an additional investment of£220m over five years, creating an additional 1,500 jobs, rather thanthe projected decline from 10,000 developers today," as reported by the Financial Times.
Instead of entertaining these ideas, the UK government seems more likely to fight Canada."The UK government is concerned that state aid offered to computergames companies by a number of federal institutions in Canada may notbe compatible with World Trade Organization principles," an officialfrom the UK Ministry of Culture, Media and Sport told Canwest NewsService.
Paul Jackson, director of the Entertainment and Leisure Software Publishers Association, used even stronger words when talking to the Financial Times about this issue."The Canadians have driven a tank over the French Citroen and have nowparked on our lawn... it is becoming very challenging to keep coredevelopment studios here."

Searching for "game industry" on the Invest Quebec site,you can see how quickly the big studios are expanding their Canadianpresence. "Ubisoft is one of the world's leading designers andpublishers of video games, with subsidiaries in 21 countries and 3,000employees. Its Montreal studio alone employs over 1,300 people (anumber that is expected to double by 2010) and produces close to 50percent of the titles in the Ubisoft group's catalogue," the siteproclaims.
Or, again, "Beenox Studios (Activision) has been a wholly-ownedsubsidiary of Activision since 2005. The company, which has more than100 employees at its Québec City studio, plans to triple its workforcein the near future by hiring 200 people by 2009."
The economic break given to developers in Quebec is huge: companies cansave up to 30 percent of payroll in tax credits, with a 7.5 percentbonus if the game includes a French-language version. If you've everpurchased a game with instructions in both French and English, even inthe US, there was a very good reason for that.

The UK government may be barking up the wrong tree, as the WTO TRIMs (Trade-Related Investment Measures) agreement seems to address this directly."The long and short of the TRIMs Agreement is that developed countriescan offer all the investment incentives they please, by tax relief orother means, provided they avoid local content requirements," noted theCenter for Strategic Tax Reform.
Fighting Canada over these issues could be a long process, and inthe meantime game developers will leave the country. The WTO is notknown for ruling on these disputes in a timely fashion, and the casehas to go through the EU before even getting that far.
This isn't the first time the UK has clashed with Canada over taxbreaks causing businesses to pack up and move to our chilly neighbor upnorth. The last product to cause controversy? Wine.