Tax Breaks in the Gaming Industry: A Regional Arms Race

The consulting firm Nordicity has extensive experience in the field of tax credits for the gaming industry, having collaborated with trade groups worldwide to explain the benefits of tax breaks to legislators and make their regions more competitive. They have also assisted governments in exploring and implementing tax breaks, including helping with logistics. Recently, Nordicity co-CEO Kristian Roberts shared his insights on the current state of gaming tax breaks globally. According to Roberts, the situation can be described as regional arms races, primarily occurring in Continental Europe and Australia-New Zealand. New Zealand's recent adoption of a 20% tax break program is a prime example, with Roberts noting that one country's adoption of tax breaks puts pressure on neighboring countries to follow suit or risk losing their studios. This sentiment is echoed by Chelsea Rapp, former chairperson of the New Zealand Game Developers Association, who stated that studios would consider relocating to Australia if they didn't receive tax breaks. Roberts explains that there is an arms race among jurisdictions to secure the gaming industry, with each looking to their neighbors to determine the most competitive compensation and then crafting their own tax credits. In Europe, Italy and Ireland have adopted tax credits in recent years, increasing pressure on other countries to do the same. Even Germany, which has traditionally been averse to tax breaks, is now considering them to remain competitive. Roberts expects the next arms races to emerge in South America and Southeast Asia, where mid-tier jurisdictions are transitioning from service-based work to developing their own intellectual property. As these development scenes succeed, they generate a middle class, making it less likely for countries like Colombia, the Philippines, and Indonesia to be seen as cheap options for outsourcing. When asked if governments adopt tax breaks as a temporary boost or permanent support, Roberts says the question rarely arises, with governments often focusing on being competitive without considering the long-term implications. However, there are risks involved, as changes in government can lead to the cancellation of tax credits, as seen in Alberta, Canada. Despite these risks, industry trade groups have been successful in keeping incentives out of political crosshairs by working with opposition parties and educating them on the value of tax credits. So, do tax breaks actually work? According to Roberts, it depends on what you expect them to achieve. Tax breaks help employ people in the gaming industry, making it easier for companies to hire staff. However, if a country lacks a gaming industry, tax breaks will not create one. Additionally, tax breaks are not a reliable means of boosting original intellectual property creation. Roberts cites the Canary Islands as an example, where a generous tax break has had little impact due to the lack of a development scene. He also notes that tax breaks in Canada have been successful in growing the industry's headcount, but the benefits accrue to non-Canadian entities like Ubisoft and EA. Tax breaks are best viewed as a means to make labor more competitive, reducing production costs, but their impact on IP creation is largely incidental. If the goal is to create new IP and wealth, funding support for new IP, such as the Canadian Media Fund, can be a complementary solution, enabling companies to establish and scale up their IP.