Tax credit could be a game changer

Ireland needs to play to win in digital gaming, say PwC’s Colin Smith and Noreen Lynch.

Digital gaming is a serious business and an important economic and cultural asset for Ireland and the world. 

The sector globally experienced phenomenal growth during the pandemic as people sought new entertainment sources and social connection.  Video games are now the most favoured entertainment medium among young people.

“Growth in the Irish digital gaming sector has not matched the exponential growth in the sector globally”

According to PwC’s Global Entertainment and Media Outlook 2022-26, the gaming industry is expected to be worth US$321bn by 2026, compared with US$214bn in 2021. Those numbers would have been inconceivable back in 1972 when Atari released Pong, the arcade game credited with kickstarting the industry. 

Since that time, companies have invested heavily in the development of consoles, handheld devices and PC games and more recently in innovations such as cloud gaming, virtual reality and blockchain.  On the global stage, there is strong competition among countries for business in the sector.

Ireland: A global games hub

In 2011, Fine Gael launched an action plan “to put Ireland firmly on the map as a global games hub for the 21st Century”.  At that time, Ireland had a strong cluster of games start-ups, home grown companies that had achieved global recognition and big names with support functions here.

Disappointingly, a 2017 Government commissioned report on the Irish audiovisual sector showed that in 2016 the gaming sector generated a mere €143m in gross value added (GVA) to the Irish economy.

Recognising the pivotal role of the film tax credit in stimulating growth in that sector in Ireland, the report recommended the extension of film relief to the games sector.

Back in 2011, our ambitious digital games action plan was highlighted to the UK Government by the CEO of TIGA, which represents the UK video games industry, when he recognised that Ireland “already has a very credible business proposition in place: a corporation tax rate of 12.5 per cent, an R&D Tax Credit and a well-educated and flexible workforce”.

Despite the best laid plans and key ingredients to maximise the potential of the global gaming sector, as stated by Minister Donohoe in his Budget 2022 speech, growth in the Irish digital gaming sector has not matched the exponential growth in the sector globally.

Digital gaming tax credit

The launch of the long awaited digital gaming tax credit last month is an important investment in the sector by the Irish Government.  This tax incentive could be the game changer that will kickstart our digital gaming industry.  It follows hot on the heels of a European Parliament vote to increase investment in the EU’s gaming industry.

The impact of well targeted policy measures to stimulate the growth of the lucrative gaming sector is clear.  In Quebec, Government subsidies for multimedia companies who create employment in the region played a valuable role in establishing the province as the “Hollywood of Video Games.”

According to the CEO of Interactive Ontario, the trade association representing interactive digital media (IDM) in the province, the Ontario IDM Tax Credit and the province’s favourable business environment have “created one of the best jurisdictions worldwide for game studios”.

The French video games tax credit dates back to 2008 and is an important component of the French Government’s “Join the Game” campaign launched in 2019 to entice games developers to relocate to France. 

Since its introduction in the UK in 2014, the video games tax credit has seen companies make claims for 1,940 games, with UK expenditure of £5.1bn.

In order to put its name on the map as an internationally competitive games location, in 2020 Germany launched a non-refundable grant programme for the industry. 

Ireland at the forefront of digital gaming globally 

As the old saying goes, there is no time like the present to start putting Ireland at the forefront of digital gaming globally.  The new digital gaming tax credit will provide valuable financial support for digital game developers. 

Subject to certain thresholds, the relief offers a non-refundable cash injection of up to 32% of the cost of designing, producing and testing digital games with culturally relevant Irish and / or European content. 

The tax incentive should encourage innovation, increase investment in the Irish digital gaming sector, contribute to Irish economic growth and create high quality employment opportunities. 

While Ireland will need to closely monitor the impact of this new tax incentive and, in particular, the operation of the cultural test, its introduction is certainly a significant milestone. 

Eligible companies should focus now on getting the benefit of this valuable tax relief.

It is undoubtedly a very exciting time for our digital gaming sector.

The authors

Noreen Lynch
Fair haired woman.

Noreen Lynch is a senior tax manager working within the Tax Solutions Centre at PwC.  She has over 14 years’ experience advising corporate clients, including domestic and multinational companies and groups, in areas such as reconstructions and reorganisations, tax planning and M&A as well as managing their tax compliance and tax accounting.  Noreen is an advocate of the exciting potential of Ireland’s gaming industry. Noreen is a fellow of Chartered Accountants Ireland and an associate of the Irish Taxation Institute.  During her time in London, Noreen provided tax advice and compliance services to large corporate clients and also successfully completed the UK Chartered Tax Adviser qualification with the Chartered Institute of Taxation.

Colin Smith
Man wearing green tie.

Colin Smith is a PwC tax partner with over 16 years of experience assisting major Irish plcs and foreign multinationals manage all aspects and stages of the tax lifecycle. Colin’s experience includes international structuring, IP planning, the establishment of international principal structures, tax efficient financing, controversy management, M&A, tax accounting and auditing. Colin is a Fellow of the Institute of Chartered Accountants, Associate of the Institute of Tax, has held various tax industry representative roles and has also worked in New York where he advised US companies considering investing into Ireland.

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