Digital gaming companies can now avail of the Digital Gaming Tax Credit

Following a recent Commencement Order issued by the Minister for Finance, the regime is now set to go live.

“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.” - Minister Donohoe stated at a recent launch event for the DGTC.

Background

The 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. Digital gaming is a billion-dollar industry worldwide.  Ireland is now a base for many large international gaming companies and has seen strong growth in indigenous gaming companies in recent years.

What is the digital games tax credit?

The DGTC is a refundable corporation tax credit on qualifying digital games made by qualifying game development companies.

The tax credit is given at 32% of the lowest of

• The “eligible expenditure”; or
• 80% of “qualifying expenditure”; or
• €25,000,000

“eligible expenditure” means the portion of the qualifying expenditure incurred developing digital games in the State or the European Economic Area (EEA).

“qualifying expenditure”, in relation to a qualifying digital game, is expenditure incurred by the digital games development company on the design, production and testing of a digital game.

Qualifying expenditure must not be less than €100,000.

Who can claim the credit?

The credit is available for qualifying “digital games development companies” (DGTC)

A DGDC is a company:

• Resident in the state or a European Economic Area (EEA) state.
• Wholly or principally trades in developing digital games on a commercial basis with a view to profit.
• Has previously submitted a corporation tax return to Revenue.
• Is not undertaken in difficulty.

A “digital game” is one that:

• Integrates digital technology.
• Incorporates not less than three of the following classes of information in digital form (text, sound, still images, animated images).
• Is capable of being published on an electronic medium.
• Is controlled by software enabling the person playing the game to interact fully with the game's dynamics, including by providing feedback to the person, enabling control over game elements by the person, and allowing the person to adapt aspects of the game.

To claim the credit, the game must be an “eligible digital game”, one which:

• Is developed on a commercial basis with a view to the realisation of profit.
• Is made available to the public.
• Qualifies as an exempted work (within the meaning of the Video Recordings Act 1989).
• Is not produced as a promotional campaign or involving gambling.

How to claim the credit?

Assuming you meet the criteria to claim the credit, the next steps are to apply for a cultural certificate from the Minister for Tourism, Culture, Arts, Gaeltacht, Sport and Media.

There are two types of certificates

Interim cert: An interim certificate allows a DGDC to receive a tax credit during the development of a project. It will enable the DGDC to claim a tax credit for qualifying expenditures within 12 months of incurring the expenditure. The interim certificate application form can be found here.

Final cert: Once the digital game is developed and put to market, the DGDC can apply for a final certificate which allows them to claim a credit for the entire qualifying expenditure (less any interim amount claimed). The final certificate application form can be found here.

Once a certificate has been received, the DGTC is claimed by amending the Corporation Tax Return (CT1) immediately preceding the expenditure being incurred.

Practical issues with the DGTC

While the support for the digital gaming industry is welcomed, the legislation as currently enacted may not achieve the full impact it deserves. The reason for this is that the digital games industry is not the same as the film industry.

The film tax credit is claimed in advance of expenditure being incurred which creates the need for clawback provisions if the incorrect amount is claimed. In the DGTC, expenditure is incurred by the claimant prior to claiming the credit for both interim and final claims. Despite this key difference, both credits are subject to the same clawback provisions. 

The provisions state that the persons liable to any clawback of the credit are: 

• The DGDC.
• Any director of the DGDC.
• Each person is able directly or indirectly to control more than 15% of the ordinary share capital of the DGDC.

To an amount equal to:

• In the case of a company, four times.
• In the case of an individual, one hundred fortieths.

The inclusion of such clawback provisions can only be viewed in the context of why they were included in the film tax credit legislation. The film tax credit legislation provides for the film tax credit to be paid in advance of any expenditure being incurred on the film, in certain circumstances, to assist cash flow for the film. However, in the case of the DGTC, there is no advance tax credit.

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, digital games are often discarded because they become economically unviable or aren’t of a quality standard. This is frequently after significant sums have been invested. This leaves the stakeholders in the DGDC only being able to claim the DGTC on the proportion of the spend relating to fully completed projects. 

Qualifying expenditure for DGTC purposes includes design, production and testing costs. This means relief is not available in respect of post-launch expenditure (i.e. maintenance, debugging, and additional game content post-launch). Additionally, there is a €2 million limit on subcontracting work.

One aspect where the DGTC differs from the film tax credit is its cap. The maximum tax credit possible for films is €22.4 million, whereas the DGTC has a cap of €25 million, making the most significant tax credit available €8 million (€25,000,000 *32%).  While this may cover the development costs of independent games, the average high-profile high-release blockbuster game costs an average €75 million to develop. It remains to be seen if the DGTC will be competitive enough to lurehigh-profile international games companies to Ireland. 

Further detailed information on the DGTC can be found on the Revenue Commissioners website here. 

If you are interested in claiming the DGTC or seeking general advice, please get in touch with us.