House of Commons Public Bill Committee Proceedings

House of Commons

Session 2010 - 11
Internet Publications
Other Bills before Parliament

Report Stage Proceedings: 8 November 2010
300

Finance (No.2) Bill, continued

1216G
“Company tax return”

In this Part “company tax return” has the same meaning as in Schedule

18 to FA 1998 (see paragraph 3(1)).

Chapter 2

Taxation of Activities of Video Game Production Company

Separate video game trade

1216H
Activities of video game production company treated as a separate

          trade

(1)
This Chapter applies for corporation tax purposes to a company that is

the video game production company in relation to a video game.

(2)
The company’s activities in relation to the video game are treated as a

trade separate from any other activities of the company (including any

activities in relation to any other video game).

(3)
In this Chapter the separate trade is called “the separate video game

trade”.

(4)
The company is treated as beginning to carry on the separate video

game trade—

(a)
when design begins, or

(b)
if earlier, when any income from the video game is received

by the company.

1216I
Calculation of profits or losses of separate video game trade

(1)
This section applies for the purpose of calculating the profits or losses

of the separate video game trade.

(2)
For the first period of account the following are brought into

account—

(a)
as a debit, the costs of the video game incurred (and

represented in work done) to date, and

(b)
as a credit, the proportion of the estimated total income from

the video game treated as earned at the end of that period.

(3)
For subsequent periods of account the following are brought into

account—

(a)
as a debit, the difference between the amount of the costs of

the video game incurred (and represented in work done) to

date and the corresponding amount for the previous period,

and

(b)
as a credit, the difference between the proportion of the

estimated total income from the video game treated as earned

at the end of that period and the corresponding amount for the

previous period.

(4)
The proportion of the estimated total income treated as earned at the

end of a period of account is given by— C / T x I

where—

C is the total to date of costs incurred (and represented in work done),

Report Stage Proceedings: 8 November 2010
301

Finance (No.2) Bill, continued

T is the estimated total cost of the video game, and

I is the estimated total income from the video game.

Supplementary

1216J
Income from the video game

(1)
References in this Chapter to income from the video game are to any

receipts by the company in connection with the making or exploitation

of the video game.

(2)
This includes—

(a)
receipts from the sale of the video game or rights in it,

(b)
royalties or other payments for use of the video game or

aspects of it (for example, characters or music),

(c)
payments for rights to produce games or other merchandise,

and

(d)
receipts by the company by way of a profit share agreement.

(3)
Receipts that (apart from this subsection) would be regarded as of a

capital nature are treated as being of a revenue nature.

1216K
Costs of the video game

(1)
References in this Chapter to the costs of the video game are to

expenditure incurred by the company on—

(a)
video game-making activities in connection with the video

game, or

(b)
activities with a view to exploiting the video game.

(2)
This is subject to any provision of the Corporation Tax Acts

prohibiting the making of a deduction, or restricting the extent to

which a deduction is allowed, in calculating the profits of a trade.

(3)
Expenditure that (apart from this subsection) would be regarded as of

a capital nature only because it is incurred on the creation of an asset

(the video game) is treated as being of a revenue nature.

1216L
When costs are taken to be incurred

(1)
For the purposes of this Chapter costs are incurred when they are

represented in the state of completion of the work in progress.

(2)
Accordingly—

(a)
payments in advance of work to be done are ignored until the

work has been carried out, and

(b)
deferred payments are recognised to the extent that the work

is represented in the state of completion.

(3)
The costs incurred on the video game are taken to include an amount

that has not been paid only if it is the subject of an unconditional

obligation to pay.

(4)
If an obligation is linked to income being earned from the video game,

no amount is to be brought into account in respect of the costs of the

obligation unless an appropriate amount of income is or has been

brought into account.

Report Stage Proceedings: 8 November 2010
302

Finance (No.2) Bill, continued

1216M
Pre-trading expenditure

(1)
This section applies if, before the company began to carry on the

separate video game trade, it incurred expenditure on development of

the video game.

(2)
The expenditure may be treated as expenditure of the separate video

game trade and as if incurred immediately after the company began to

carry on that trade.

(3)
If expenditure so treated has previously been taken into account for

other tax purposes, the company must amend any relevant company

tax return accordingly.

(4)
Any amendment or assessment necessary to give effect to subsection

(3) may be made despite any limitation on the time within which an

amendment or assessment may normally be made.

1216N
Estimates

Estimates for the purposes of this Chapter must be made as at the

balance sheet date for each period of account, on a just and reasonable

basis taking into consideration all relevant circumstances.

Chapter 3

Video Game Tax Relief

Introductory

1216O
Availability and overview of video game tax relief

(1)
This Chapter applies for corporation tax purposes to a company that is

the video game production company in relation to a video game.

(2)
Relief under this Chapter (“video game tax relief”) is available to the

company if the conditions specified in the following sections are met

in relation to the video game—

(a)
section 1216P (intended for commercial release),

(b)
section 1216Q (British video game), and

(c)
section 1216R (UK expenditure).

(3)
Video game tax relief is given by way of additional deductions (see

sections 1216S and 1216T).

(4)
Section 1216U contains provision about unpaid costs and artificially

inflated claims.

(5)
In this Chapter “the separate video game trade” means the company’s

separate trade in relation to the video game (see section 1216H).

(6)
See Schedule 18 to FA 1998 (in particular, Part 9D) for information

about the procedure for making claims for video game tax relief.

Conditions of relief

1216P
Intended commercial release

(1)
The video game must be intended for commercial release.

Report Stage Proceedings: 8 November 2010
303

Finance (No.2) Bill, continued

(2)
For this purpose—

(a)
“commercial release” means distribution to the paying public,

and

(b)
a video game is not regarded as intended for commercial

release unless it is intended that a significant proportion of the

earnings from the video game should be obtained by such

distribution.

(3)
Whether this condition is met is determined for each accounting

period of the company during which video game-making activities are

carried on in relation to the video game, in accordance with the

following rules.

(4)
If at the end of an accounting period the video game is intended for

commercial release, the condition is treated as having been met

throughout that period (subject to subsection (5)(b)).

(5)
If at the end of an accounting period the video game is not intended for

commercial release, the condition—

(a)
is treated as having been not met throughout that period, and

(b)
cannot be met in any subsequent accounting period.


This does not affect any entitlement of the company to relief in an

earlier accounting period for which the condition was met.

1216Q
British video game

(1)
Subject to subsection (2), a video game is a British video game for the

purposes of this Part if it achieves a minimum of 19 points out of a

maximum of 37 from the following table, with a minimum of 9 points

being obtained in sections A and B:

A
Cultural Content
Number of points

A1
The video game is based on locations in Europe (including
From 0 to 4 points

fictionalised versions of locations in Europe) or on peoples

of Europe.

A2
The video game is inspired by or based upon: (i) European
From 0 to 4 points

underlying material (such as a film, a book or artistic work;

or (ii) a sport (or sports) that originated in Europe or (iii)

an event (or events) held (or previously held) within

Europe; or (iv) any other European subject matter.

A3
The in-video game dialogue and in-video game text is
2 points

mainly in the English language.

B
Cultural Contribution

B1
The video game is an original video game (as opposed to
3 points

being a sequel to a previous video game).

B2
The video game is based on or strongly features a narrative
From 0 to 4 points

(as opposed to being a purely abstract or non-linear video

game).

B3
The video game incorporates any clear technical or
From 0 to 4 points

creative innovations such as innovations in: (i) gameplay;

(ii) graphics; (iii) user interface; (iv) artificial intelligence,

audio or physics; or (v) online or multiplayer functionality.

B4
The video game represents or reflects: (i) diverse European
From 0 to 4 points

culture; or (ii) European heritage; or (iii) European

creativity.

C
Cultural Hubs

C1
At least 50 per cent. of the production budget in incurred
From 0 to 4 points

within the UK.

C2
The in-video game text is translated into at least two other
2 points

official languages of the EEA.

D
Cultural Practitioners

D1
Executive Producer.
1 point

D2
Lead Programmer.
1 point

D3
Lead Artist.
1 point

D4
Scriptwriter.
1 point

D5
Lead Designer.
1 point

D6
Lead music and audio composer.
1 point

Total Achievable Points
37 points

Report Stage Proceedings: 8 November 2010
304

Finance (No.2) Bill, continued

(2)
Notwithstanding the above, a video game is not a British Video Game

if it is of a pornographic nature or features extreme violence.

1216R
UK expenditure

(1)
At least 25 per cent. of the core expenditure on the video game

incurred must be UK expenditure.

(2)
The Treasury may by regulations amend the percentage specified in

subsection (1).

Additional deductions

1216S
Additional deduction for qualifying expenditure

(1)
If video game tax relief is available to the company, it may (on making

a claim) make an additional deduction in respect of qualifying

expenditure on the video game.

(2)
The deduction is made in calculating the profit or loss of the separate

video game trade.

(3)
In this Chapter “qualifying expenditure” means core expenditure on

the video game that falls to be taken into account under Chapter 2 in

calculating the profit or loss of the separate video game trade for tax

purposes.

(4)
The Treasury may by regulations—

Report Stage Proceedings: 8 November 2010
305

Finance (No.2) Bill, continued

(a)
amend subsection (3), and

(b)
provide that expenditure of a specified description is or is not

to be regarded as qualifying expenditure.

1216T
Amount of additional deduction

(1)
For the first period of account during which the separate video game

trade is carried on, the amount of the additional deduction is given

by— E x R

where—

E is—

(a)
so much of the qualifying expenditure as is UK expenditure,

or

(b)
if less, 80 per cent. of the total amount of qualifying

expenditure, and

R is the rate of enhancement (see subsection (3)).

(2)
For any period of account after the first, the amount of the additional

deduction is given by — (E x R) - P

where—

E is—

(a)
so much of the qualifying expenditure incurred to date as is

UK expenditure, or

(b)
if less, 80 per cent. of the total amount of qualifying

expenditure incurred to date,


R is the rate of enhancement (see subsection (3)), and

P is the total amount of the additional deductions given for previous

periods.

(3)
The rate of enhancement is—

(a)
for a limited-budget video game, 100, and

(b)
for any other video game, 80 per cent.

(4)
The Treasury may by regulations amend the percentage specified in

subsection (1) or (2).

Miscellaneous

1216U
No account to be taken of amount if unpaid

(1)
In determining for the purposes of this Chapter the amount of costs

incurred on a video game at the end of a period of account, ignore any

amount that has not been paid 4 months after the end of that period.

(2)
This is without prejudice to the operation of section 1216L.

1216V
Artificially inflated claims for additional deduction or video game

          tax credit

(1)
So far as a transaction is attributable to arrangements entered into

wholly or mainly for a disqualifying purpose, it is to be ignored in

determining for any period any additional deduction which a company

may make under this Chapter.

(2)
Arrangements are entered into wholly or mainly for a disqualifying

purpose if their main object, or one of their main objects, is to enable

a company to obtain an additional deduction under this Chapter to

Report Stage Proceedings: 8 November 2010
306

Finance (No.2) Bill, continued

which it would not otherwise be entitled or of a greater amount than

that to which it would otherwise be entitled.

(3)
“Arrangements” includes any scheme, agreements or understanding,

whether or not legally enforceable.

Chapter 4

Video Game Losses

1216W
Application of sections 1216X and 1216Y

(1)
Sections 1216X and 1216Y apply to a company that is the video game

production company in relation to a video game.

(2)
In those sections—

“the completion period” means the accounting period of the

company—

(a)
in which the video game is completed, or

(b)
if the company does not complete the video game, in which it

abandons video game-making activities in relation to the

video game,


“loss relief” includes any means by which a loss might be used to

reduce the amount in respect of which the company, or any other

person, is chargeable to tax,

“pre-completion period” means an accounting period of the company

before the completion period, and

“the separate video game trade” means the company’s separate trade

in relation to the video game (see section 1216H).

1216X
Restriction on use of losses while video game in production

(1)
This section applies if in a pre-completion period a loss is made in the

separate video game trade.

(2)
The loss is not available for loss relief except to the extent that it may

be carried forward under section 45 of CTA 2010 to be set against

profits of the separate video game trade in a subsequent period.

1216Y
Use of losses in later periods

(1)
This section applies to the following accounting periods of the

company (“relevant later periods”)—

(a)
the completion period, and

(b)
any subsequent accounting period during which the separate

video game trade continues.

(2)
Subsection (3) applies if a loss made in the separate video game trade

is carried forward under section 45 of CTA 2010 from a pre-

completion period to a relevant later period.

(3)
So much (if any) of the loss as is not attributable to video game tax

relief (see subsection (6)) may be treated for the purposes of loss relief

as if it were a loss made in the period to which it is carried forward.

(4)
Subsection (5) applies if in a relevant later period a loss is made in the

separate video game trade.



© Parliamentary copyright 2010	Revised 9 November 2010