2008/354/EC: Commission Decision of 11 December 2007 on State Aid C 47/06 (ex N 648/05) Tax credit introduced by France for the creation of video games (notified under document number C(2007) 6070) (Text with EEA relevance)
Date: 2007-12-11
Institutions: European Commission
Subjects: France, State aid, automatic game, control of State aid, software, tax relief

L 118/16

EN

Official Journal of the European Union

6.5.2008

(Acts adopted under the EC Treaty/Euratom Treaty whose publication is not obligatory)

II

DECISIONS

COMMISSION

COMMISSION DECISION

of 11 December 2007

on State Aid C 47/06 (ex N 648/05) Tax credit introduced by France for the creation of video games

(notified under document number C(2007) 6070)

(Only the French text is authentic)

(Text with EEA relevance)

(2008/354/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(3)

Having regard to the Treaty
Community,
and in particular
Article 88(2) thereof,

establishing the European
subparagraph of
the

first

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments
pursuant to the provisions cited above (1) and having regard to
their comments,

(4)

(5)

Whereas:

On 3 May 2006 a meeting took place between the
Commission and the French authorities. Following the
meeting,
the French authorities made changes to the
measure and informed the Commission accordingly by
letter of 12 June 2006.

On the basis of these changes, the Commission requested
additional
information by letter of 1 August 2006, to
which the French authorities replied, after requesting a
deadline extension, by letter of 18 September 2006.

France of

By letter of 22 November 2006,
the Commission
the
informed
procedure provided for in Article 88(2) of the Treaty
in respect of the tax credit for the creation of video
games.

its Decision to initiate

(1)

(2)

1. PROCEDURE

The French authorities notified the present aid measure
on 20 December 2005.

(6)

France submitted its comments by letter of 22 December
2006, registered as received on 3 January 2007.

By letter of 25 January 2006, the Commission asked for
additional
information that was provided by letter of
15 February 2006.

(7)

The Commission Decision to initiate the procedure was
published in the Official Journal of the European Union (2).
The Commission called on interested parties to submit
their comments on the measure under review.

(1) OJ C 297, 7.12.2006, p. 19.

(2) See footnote 1.

6.5.2008

EN

Official Journal of the European Union

L 118/17

(8)

The Commission received comments from the following
interested parties:

2. DETAILED DESCRIPTION OF THE MEASURE ON THE
DATE ON WHICH THE PROCEDURE WAS INITIATED

— TIGA, by letter of 21 December 2006,

— EGDF, by letter of 22 December 2006,

— GAME, by letter of 3 January 2007,

— ADESE, by letter of 3 January 2007,

— APOM, by letter of 5 January 2007,

— ISFE, by letter of 5 January 2007,

— Ubisoft, by letter of 8 January 2007.

(16)

The measure is a scheme, in the form of a tax credit, for
supporting the creation of video games with a cultural
dimension. On the date on which the procedure was
initiated, the details of the scheme were as follows:

(a) Eligible undertakings and video games

(17)

The eligible undertakings are video game manufacturers,
namely video game development studios, whether inde-
pendent undertakings or subsidiaries of publishers.

(9)

them were received after

The Commission received further comments but, since
the one-month
most of
the decision in the
deadline following publication of
Official Journal of the European Union,
it did not accept
them.

(18)

(10)

The comments
forwarded to France by letter of 12 February 2007.

submitted by the deadline set were

Eligible games are defined as leisure software made
available to the public on a physical medium or on-
line and incorporating elements of artistic and techno-
logical creation; the latter cover not only PC and console
video games but also mobile games, on-line games for
one or more players,
edutainment
software and, provided that they incorporate sufficient
interactivity
cultural CD-ROMs. A
threshold of EUR 150 000 for development costs has
been set so as to exclude games not intended for large-
scale marketing. In addition, to be eligible for the tax
credit, the video games must satisfy a number of criteria.

educational or

creativity,

and

(11)

By letter of 23 January 2007 and in preparation for a
meeting with the Commission that was held on
29 January 2007, the French authorities informed the
the changes made to the measure
Commission of
notified.

(19)

The first criterion is a negative one: video games
containing pornographic or extremely violent sequences
are not eligible for the tax credit.

(12)

The Commission asked for
21 February 2007.

further

information on

(13)

By letter of 22 March 2007,
the French authorities
presented their observations on the interested parties’
comments sent on 12 February 2007 and their replies
to the questions sent on 21 February 2007.

(14) Meetings took place with representatives of EGDF and
ISFE on 13 and 14 February 2007 respectively.

(15) On 31 July 2007 a meeting took place between the
French authorities and the Commission after which the
French authorities sent three letters to the Commission
dated 5 October, 17 October and 7 November 2007 and
informing it of
the changes made to the measure
notified.

(20)

Eligible video games must also have a cultural dimension.
For this, they must satisfy one of the following two
criteria:

(a) either

they must adapt an existing work from
Europe’s cultural heritage on the basis of a scenario
written in French;

(b) or they must satisfy a criterion relating to the quality
and originality of the concept and to their contri-
bution to expressing Europe’s cultural diversity and
creation in the field of video games. This criterion
will be assessed by examining the quality and
originality of the content, the scenario, playability,
navigation and interactivity as well as the visual,
sound and graphic elements.

L 118/18

EN

Official Journal of the European Union

6.5.2008

(21)

Lastly, there is a European cultural criterion relating to
the nationality of the creative collaborators: a system of
points that are broken down by category and awarded
according to whether the job is held by a national of a
Member State of the European Union determines the
European nature of video games and hence their elig-
ibility for the tax credit. For the points system, account
is taken not only of the collaborators employed directly
by the game manufacturer but also of those working for
any subcontractors.

(b) Eligible expenditure

(22)

Eligible expenditure is defined so as to correspond to the
expenditure on conception and creation.
It does not
include
expenditure on debugging or downstream
testing. It does include the following:

(a) personnel costs (wages and social security contri-

butions) for:

1. the producer, the assistant producer, the artistic

director and the technical director;

(c) Tax credit mechanism

(24)

The tax credit rate is applied to the expenditure base as
defined above. The rate is 20 % of eligible expenditure.

(25)

The French authorities propose introducing a ceiling per
undertaking in order to keep the tax cost of the measure
under control. As things stand, they propose to set a
ceiling of EUR 3 million. The annual budget expected
for the scheme is put at some EUR 30 million.

(26) An authorisation procedure is also in place for ascer-
taining that the criteria for selecting video games are
met. An assessment is made by a committee of experts
made up of representatives of the French administration
and qualified individuals who are not necessarily active in
the field of video games but who can represent other
cultural disciplines. This group of experts will verify the
eligibility of the undertaking and of the game, the nature
of expenditure and compliance with the cultural criteria
described in recitals 19, 20 and 21.
It will give an
opinion on the basis of which the Culture and Commu-
nication Ministry will issue its approval.

2. the individuals responsible for the scenario and
the design and the conception of

dialogues,
game levels;

(27)

3. the persons responsible for programming;

4. the persons responsible for graphic design and

animation;

5. the persons responsible for the sound environ-

ment.

The payment arrangements are as follows: the tax credit
is set off against the corporation tax payable in respect of
the first tax year closed after the date on which provi-
sional authorisation is given for the launch of the project
and then against the corporation tax payable in respect
of each financial year during which eligible expenditure
has been incurred. Final authorisation is given upon
supply to the publisher.
final authorisation is not
If
given within 24 months of provisional authorisation
being given, the undertaking must repay the tax credit
it has used. Lastly, where the amount of the tax reduction
for a particular tax year exceeds the amount of tax due,
the difference is refunded to the undertaking.

(b) depreciation of assets other than buildings directly
assigned to the creation of approved video games;

(28)

(c) other operating expenditure calculated at a flat rate of

75 % of personnel expenditure.

3. REASONS FOR INSTITUTING THE PROCEDURE

In the first place, the Commission wished to ensure, in
accordance with the judgment in Matra v Commission (3),
that
the measure under review did not contain any
clauses that contravened the provisions of the Treaty in
fields other than State Aid.
it asked the
French authorities whether French establishments of
European undertakings were eligible for the tax credit,
It also wondered
irrespective of
whether
subcontracting expenditure
could not be regarded as discrimination based on the
location of the expenditure.

their legal structure.

the exclusion of

In particular,

(23)

Public subsidies received by the undertakings in respect
of expenditure eligible for the tax credit will be deducted
from the base for calculating the tax credit.

(3) Case C-225/91 Matra v Commission [1993] ECR I-3203, point 41.

6.5.2008

EN

Official Journal of the European Union

L 118/19

(29)

(30)

of

under

the measure

The Commission also expressed doubts as to the com-
patibility
review with
Article 87(3)(d) of the Treaty. First, it doubted whether
the measure had a clearly cultural objective. While
acknowledging that certain videos games could be
regarded as cultural products, the Commission doubted
whether the selection criteria applied meant that only
video games
cultural
could be
products within the meaning of Article 87(3)(d) were
eligible for the tax credit.

regarded as

that

The first cultural criterion proposed by the French auth-
orities for selecting eligible video games is that the games
should be an adaptation of an existing work from
Europe’s cultural heritage based on a scenario written
the examples provided by the
in French. Some of
French authorities of video games that would satisfy
this criterion seem to indicate that the criterion could
be very broadly interpreted and would not, therefore,
offer all
the necessary guarantees that selected video
games actually were an adaptation of an existing work
from Europe’s cultural heritage.

(31)

Video games are also eligible if they satisfy a criterion
relating to the quality and originality of the concept and
to their contribution to expressing Europe’s cultural
diversity and creation in the field of video games. This
criterion too can be broadly interpreted in that sports
and/or simulation games in particular, which do not
appear to have a manifestly cultural character, could be
regarded as being eligible.

(32)

The Commission also asked the French authorities to
explain the criterion that was designed to exclude from
the tax credit mechanism ‘extremely violent’ games.

buildings) are fixed at a flat rate of 75 % of personnel
expenditure. The Commission doubted whether
this
‘other operating expenditure’ made it
calculation of
possible to determine the costs actually incurred by
eligible undertakings in creating video games.

(35)

the Commission noted that, by reducing the
Lastly,
production costs of undertakings in this sector
that
were established in France, the tax credit was liable to
strengthen their position relative to their European
the
competitors.
distortions of competition and the effects on trade
were
aid
limited so that
sufficiently
assessment was positive.

therefore, whether

It wondered,

the overall

4. COMMENTS FROM INTERESTED PARTIES

that,

the cultural environment

(36) Ubisoft, TIGA (4), GAME (5), APOM (6) and EGDF (7)
stress
in their view, video games are cultural
products. They emphasise that games in general are
one of the oldest cultural traditions of mankind and
underscore its interactions with other fields of culture,
namely the cinema, music and the plastic arts. They
present video games as being audiovisual products that
can act on the imagination, way of thinking,
language
and cultural references of players, notably those in the
15-25 age category. According to them, video games
reflect
in which they are
created via the use of language and humour, music, the
environment (in particular, architecture and landscapes),
and personalities (clothing, origin) or via the scenario, the
for
themes or stories tackled, or playability. GAME,
example, stresses that German video games are often
based in Germany or in Europe and take their inspiration
from typically local stories (e.g. Siedler, which is a game
takes place in the sixteenth century).
of strategy that
While US productions are often based in the United
States and follow Hollywood tastes. Japanese games are
often based on national myths and on the style of
Japanese comic strips.

(33)

In order to assess the level of selection allowed by the
eligibility test, the Commission requested a simulation
based on production in recent years.

(37)

(34)

effect, whether

The Commission also expressed doubts as to whether the
measure was designed to meet the cultural objective laid
it had a sufficient
down, and in particular whether
incentive
other
not
instruments more appropriate than the measure and
whether it was proportional. On the last point,
the
Commission stated that an aid measure, to be propor-
tional, had to be based on a correct definition of eligible
costs. Now, the ‘other operating expenditure’ (excluding
personnel costs and depreciation of assets other than

there were

The same third parties take the view that the impact of
the measure on trade and competition will be limited and
that the measure does not present any real risk for their
national industries, notably in Germany and the United
Kingdom. EGDF stresses in particular that, by permitting
20 % financing of between 15 and 30 projects over a
period of two years, the measure as notified will create
only a limited distortion as 1 500 video games are
marketed each year in each Member State. In addition,

(4) Trade association representing the business and commercial interests

of games developers.

(5) Bundesverband der Entwickler von Computerspielen e.V.

(Federal

German Association of Video Game Manufacturers).

(6) Association des Producteurs d'Oeuvres Multimédia.
(7) European Games Developer Federation.

L 118/20

EN

Official Journal of the European Union

6.5.2008

the main distortions of competition
TIGA notes that
come from third countries, particularly Canada, where
the authorities have a much more pro-active policy of
support for their video game industry. Some of the third
parties also emphasise the fact that this measure might
have the effect of promoting video game production
the European Community. GAME agrees,
throughout
subcontracting costs can be
but on condition that
included in eligible costs: otherwise,
the beneficiary
undertakings would be prompted to internalise their
costs rather than having recourse to subcontracting.

(38)

that

video games

ISFE (8), which represents video game
By contrast,
(including Sony, Microsoft, Nintendo and
publishers
Vivendi),
could not be
argues
regarded as cultural products but only as interactive
entertainment products. Whereas a film viewer watches
in silence, the main activity of a player is to interact in a
personalised manner with the game, the story told by the
game not being of any real
importance. Unlike films,
video games are not designed as a vehicle for ideas or
their main value resides in
cultural messages.
playability and in interaction with the player or players.
ISFE stresses that video games must be regarded as
software and not as audiovisual products. It also chal-
lenges the idea that the alleged artistic expenditure may
represent more than 50 % of the expenditure on a video
game’s concept. According to ISFE,
is instead the
software expenditure — clearly linked to playability —
that exceeds all other expenditure and represents up to
70 % of production costs. ISFE also claims that the tax
credit demonstrates a misunderstanding on the part of
the French authorities of the real nature of video games.

Indeed,

it

and by encouraging the

(39) Nor does ISFE rule out the possibility that the measure
may adversely affect
competition by reducing the
production costs of a group of video game manufacturers
redirection of
in France
investment from other Member States to France. It also
takes the view that the tax credit will encourage the
production of video games that will not reflect market
demand and points to the risk of cross-subsidisation,
with manufacturers using the aid obtained by them for
their ‘cultural’ games to finance the manufacturer of
purely commercial games. Nevertheless,
ISFE approves
the principle of support for video games in France but
emphasises that the Community framework for State Aid
for research and development and innovation would
have been a more appropriate legal basis for such
support (9).

computer programmes and not as audiovisual products,
that the production costs of a video game are essentially
technological and not artistic in nature and that, in this
respect, research and development aid would be more
appropriate. It also notes that the measure could have
an adverse effect on competition and trade between
Member States, and in particular on Spanish industry.
Lastly,
subjective
assessment by the committee of experts responsible for
applying the selection criteria as this could be a source of
discrimination.

the danger of

emphasises

it

a

5. FURTHER DETAILS PROVIDED AND CHANGES
MADE BY THE FRENCH AUTHORITIES FOLLOWING
THE INITIATION OF THE PROCEDURE

(41)

Following the initiation of the procedure and contacts
with the Commission, the French authorities notified a
certain number of details and changes as regards the tax
credit scheme.

(42)

They confirmed that French permanent establishments of
European undertakings could also qualify for the tax
credit, irrespective of their legal status.

(43) As regards the criterion aimed at excluding ‘extremely
violent’ games from the tax credit scheme, the French
authorities also explained that the committee of experts
responsible for identifying eligible games will base itself
only on the existing pan-European classification system,
PEGI (11), which describes in detail violent situations, and
in particular extremely violent situations (‘18+’ video
games). All games classified as ‘18+’ under the PEGI
system will be excluded from the tax credit scheme.

(44)

The French authorities have also made radical changes to
the selection test. While, to be eligible for the tax credit,
a game must always have a development cost in excess
of EUR 150 000 and must not include pornographic or
extremely violent sequences, a number of major changes
have been made

(40) ADESE (10) makes similar comments. It takes the view
should be regarded primarily as

that video games

(45)

The game must, from now on, be produced primarily
with the help of European authors and creative colla-
borators.

(8) Interactive Software Federation of Europe.
(9) OJ C 323, 30.12.2006, p. 1.
(10) Asociación Española de Distribuidores y Editores de Software de
Entretenimiento (Spanish Association of Distributors and Editors of
Leisure Software).

(11) Launched in 2003 by ISFE, PEGI (Pan-European Game Information)
is a system for classifying video games that was created to align the
different national systems in Europe. It has been approved by the
European Commission.

6.5.2008

EN

Official Journal of the European Union

L 118/21

(46)

From now on, the game must also obtain a maximum of 14 points (out of 22) on the basis of the
criteria set out in the table below:

1. Heritage

Criterion

Number of points

maximum 4 points

The game is an adaptation of a recognised work from Europe’s historical, artistic or
scientific heritage.
or

4 points

The game is inspired by a film, an audiovisual work, a literary or artistic work or a
European cartoon strip.

2 points

2. Original creation

The game is an original creation (originality of scenario/creativity of the graphic and
sound environment).

3. Cultural content

The game is based on a narration.

maximum 2 points

from 0 to 2 points

maximum 8 points

3 points

The artistic expenditure (1) accounts for more than 50 % of the production budget. 2 points

The original version of the scenario (‘bible of the game’) is written in French.

The game is published in its original version in at least three official languages of the
European Union.

1 point

1 point

The game deals with political, social or cultural issues of relevance to European citizens
and/or reflects values specific to European societies.

1 point

4. European location of expenditure and nationality of creative collaborators

maximum 5 points

At least 80 % of the creative expenditure is located in the territory of the European
Union.

1 point

The game involves the participation of European creative collaborators.

from 0 to 4 points

5. Editorial and technological innovation

The game includes between one and three innovations in the following six areas: man/
machine interface, content generated by users, artificial intelligence, rendering, multi-
player interactivity and functionalities, narrative structure.

maximum 3 points

from 0 to 3 points

Maximum number of points available

22 points

(1) Eligible expenditure for the tax credit corresponds to expenditure on conception and creation. Artistic expenditure covers the
personnel costs (wages and social security contributions) for the producer, the assistant producer, the artistic director and the
persons responsible for the scenario, the animation and the sound environment. It does not include the personnel costs for the
persons responsible for programming, depreciation on assets other than buildings directly assigned to the creation of video
games, and other operating expenditure.

(47) As they were required to do so by the decision initiating
the procedure, the French authorities have carried out
simulations based on the video games produced in
France in 2005-2006. On the basis of
the criteria
described in that decision, the simulation indicates that
49 % of the games would have been eligible. On the
basis of the new criteria described in recital 46,31 % of
the video games would have been eligible.

included in eligible costs up to an amount of EUR
1 million per project. They have also agreed no longer
to fix ‘other operating expenditure’
excluding
personnel costs and depreciation) at a flat rate equal to
75 % of personnel expenditure but to include only the
operating expenditure that can actually be imputed to the
creation of eligible video games.

(i.e.

(48) As for the definition of eligible costs, the French auth-
orities have extended the tax credit scheme to subcon-
subcontracting costs could be
tractors,

stating that

(49)

Lastly,
the French authorities have undertaken to re-
notify the scheme within four years of the date of its
entry into force.

(51)

(52)

(53)

L 118/22

EN

Official Journal of the European Union

6.5.2008

6. ASSESSMENT OF THE MEASURE

6.1. Classification as State Aid

(50) Article 87(1) of

the Treaty states:

‘Save as otherwise
in this Treaty, any aid granted by a
provided for
Member State or through State resources in any form
whatsoever which distorts or threatens to distort compe-
tition
the
certain
production of certain goods shall, in so far as it affects
trade between Member States, be incompatible with the
common market.’

undertakings

favouring

by

or

that

The measure under review in this decision consists of a
the corporation tax
tax credit
normally payable by beneficiaries. There is,
therefore,
this measure is granted through State
no doubt
resources.

is set off against

that

been notified to the Commission and on the basis of
which the Commission had initiated the investigation
procedure. The Law was published in the Journal Officiel
on 7 March 2007. However,
the French authorities
confirmed that the implementing decrees would not be
adopted before the Commission had taken its final
decision.

(56)

The Commission can conclude, therefore, that the aid
measure has not been implemented and that
the
French authorities have thus complied with their obli-
gations under Article 88(3) of the Treaty.

(57)

The French authorities also undertook to amend the draft
implementing decrees in order to
law and the draft
introduce the changes indicated in Section 5.

The measure is designed to reduce the production costs
of beneficiaries and clearly constitutes an advantage that
is also selective in so far as only video game manufac-
turers are eligible.
therefore, a selective
It constitutes,
advantage that could distort competition within the
meaning of Article 87(1) of the Treaty.

in 2005, which is made up of

In addition, according to the information on market
shares which has been provided by the French authorities
and is available only for video game publishers,
the
leading three French video game publishers, namely
Ubisoft, Atari and VU Games, accounted for 6,4 %,
the corresponding
3,5 % and 4,4 % respectively of
market
the United
Kingdom, Germany,
France, Spain and Italy. The
studios in France, for which the measure is intended,
account for only a small proportion of the turnover of
these publishers (25 % in the case of Ubisoft, 10 % in the
case of Atari and 2 % in the case of VU Games). They
nevertheless represent a not-insignificant proportion of
these publisher’s market shares
in the five Member
States mentioned. The measure clearly has an impact
on intra-Community trade.

(58)

(59)

(60)

(54)

In the light of the foregoing, it has to be concluded that
the measure in question constitutes State Aid within the
meaning of the Treaty.

6.3. Compatibility of

the aid with the common
market

First, acting in accordance with the principle established
by the Court in Matra (12), the Commission must ensure
that the conditions governing access to the tax credit do
not contain any clauses that contravene the provisions of
the Treaty in fields other than State Aid and in particular
that
they do not contain any discrimination on the
ground of nationality.

the measure does not
It should be noted here that
the
contain any restriction as to the nationality of
personnel employed or the location of the eligible expen-
diture. The French authorities have included subcon-
tracting expenditure in eligible costs to the extent of
EUR 1 million and have confirmed that this expenditure
irrespective of whether the subcontractor
was eligible,
was established in France or in another Member State.

The scheme is open to video game manufacturers estab-
lished in France,
including permanent French estab-
lishments of European undertakings, as the French auth-
orities confirmed in the comments
they submitted
following the decision to initiate the procedure. The
Commission takes the view that, in the light of French
tax rules, restricting the tax credit to undertakings thus
defined is inherent in the condition of being a taxable
person in France for the purposes of corporation tax and
the aid
is,
measure.

justified by the tax nature of

therefore,

6.2. Lawfulness of the aid

(55) On 31 January 2007, when the draft law on moderni-
sation of television broadcasting and on the television of
the future was debated, the French Parliament adopted
the draft article introducing the tax credit, which had

(61)

The Commission can conclude, therefore, that the aid
measure does not infringe the provisions of the Treaty
in areas other than State Aid.

(12) See footnote 3.

6.5.2008

EN

Official Journal of the European Union

L 118/23

(62)

Second, regarding the compatibility of the measure with
the Community State Aid rules, the Commission notes
that the French authorities notified the measure under
Article 87(3)(d) of
the Commission
indicated in its decision to initiate the procedure, the
compatibility of this measure with that Article should
be examined on the basis of the following questions:

the Treaty. As

In addition,

Cultural Expressions (14).
the Commission
takes note of
the increasingly wide dissemination of
video games among the different age categories and
socio-professional categories as well as among men and
women.

1. Is the measure geared to achieving a genuine objective

of promoting culture?

2. Is the measure designed in such a way as to achieve

its cultural objective? In particular:

(a)

Is it an appropriate instrument or are there other,
more appropriate instruments?

(b) Does it have a sufficient incentive effect?

(c)

Is it proportional? Could the same result not be
achieved with less aid?

(64)

(65)

It transpires that the main objective of video games is to
provide interactive entertainment, as stressed by the ISFE.
However, this does not prevent certain video games from
also having a cultural dimension, as in the case of certain
theatrical forms where interaction with the public also
takes place. Similarly, the fact that video games can be
regarded as software rather than as audiovisual products
in no way affects the fact that some of them can also be
regarded as cultural products within the meaning of
Article 87(3)(d) of the Treaty. It has to be concluded,
certain video games may constitute
therefore,
cultural products (15).
In any event, this was explicitly
recognised in the decision to initiate the procedure (16).

that

The Commission would also note that,
like any dero-
gation from the general rule spelt out in Article 87(1),
the derogation in Article 87(3)(d), must be interpreted in
a restrictive fashion. And so for the production of cine-
matographic and audiovisual works,
the Commission
communication to the Council, the European Parliament,
the Economic and Social Committee and the Committee
of the Regions on certain legal aspects relating to cine-
matographic and other audiovisual works states that, for
this derogation to apply, ‘Each Member State must ensure
that
the aided production is cultural
according to verifiable national criteria (in compliance
with the application of the subsidiarity principle)’ (17).

the content of

3. Are the distortions of competition and the effects on
the overall aid

trade limited in such a way that
assessment is positive?

(66)

Existence of a cultural objective

This principle must be applied in the present case and it
should, therefore, be ascertained that the French authori-
ties have drawn up verifiable national
criteria for
ensuring that the video games eligible for the tax credit
have a cultural content.
It is precisely because it had
doubts about the criteria initially applied by the French
the Commission initiated the investi-
authorities that
gation procedure in respect of the tax credit.

It

also takes note of

(63) On the general question as to whether video games can
be regarded as cultural products, the Commission would
note that Unesco recognises the video game industry as a
industry and the role it plays in the field of
cultural
diversity (13).
the
cultural
arguments put forward by certain third parties and by
the French authorities, and in particular those according
to which video games can act as a vehicle for images,
values and themes that reflect the cultural environment
in which they are created and may act on the ways of
thinking and the cultural references of users, especially
among young people.
It would also note in this
connection that Unesco has adopted the Convention
on the Protection and Promotion of the Diversity of

(13) See the Unesco website, and in particular the pages relating to the
cultural
for culture
industries and their role as a focal point
in the future: http://portal.unesco.org/culture/en/ev.php-URL_ID=
2461&URL_DO=DO_TOPIC&URL_SECTION=201.html

(67)

The new selection test should, therefore, be examined in
order to check whether it is consistent with the principle
set out in recital 65.

(14) Convention adopted at

the General Conference of Unesco on
20 October 2005 and incorporated into Community law by
Council Decision 2006/515/EC of 18 May 2006 on the conclusion
of
the
the Convention on the Protection and Promotion of
Diversity of Cultural Expressions (OJ L 201, 25.7.2006, p. 15)
(the text of which can be consulted at:
http://unesdoc.unesco.org/images/0014/001429/142919f.pdf).
(15) Such a conclusion in no way prejudges the classification or
description of video games resulting from national or international
standards.
(16) Recital 39.
(17) COM(2001) 534 final (OJ C 43, 16.2.2002, p. 6).

L 118/24

EN

Official Journal of the European Union

6.5.2008

(68)

(69)

(70)

To be eligible, a video game must obtain at least 14 out
of 22 points. In line with the reasoning applied by the
Commission in its Decision of 22 November 2006
concerning State Aid N 461/2005 (the UK Film Tax
Incentive decision) (18), it is necessary to identify among
the different criteria involved in the selection test those
that can be regarded as relevant when it comes to
assessing the cultural content of video games and to
the number of points attached to these
ensure that
the content of
criteria is
eligible video games can be regarded as cultural within
the meaning of Article 87(3)(d) of the Treaty.

to ensure that

sufficient

The first part of the test contains two criteria relating to
heritage and may be regarded as having a cultural
content. This is clearly the case with the criterion for
which four points are awarded if the game is an adap-
tation of a recognised work of Europe’s historical, artistic
or scientific heritage. The criterion for which two points
are awarded if the game takes its inspiration from a film,
literary or artistic work or a European
an audiovisual,
cartoon strip has a less pronounced cultural content
since it depends on the cultural
level of the work on
which the video game draws. This is, however, reflected
in the smaller number of points attached to this criterion,
which is therefore proportional and can consequently be
accepted.

It

the graphic and sound environment.

The second part of the test awards up to two points
depending on the originality of
the video game.
Account is taken of the scenario and of the creativity
of
transpires
that the creativity in audiovisual products is generally
regarded as an important aspect of products with a
cultural content. Moreover, creativity is an essential part
of
the definition of cultural expressions given in the
Unesco Convention on the Protection and Promotion
of the Diversity of Cultural Expressions (19). Furthermore,
use of the criterion of ‘original creation’ is advocated by
the Conseil supérieur de la propriété littéraire et artistique
(CSPLA) in France in order to distinguish a multimedia
work from software (20). Lastly, the simulation carried out
by the French authorities also shows that
this is a
genuinely selective criterion since only 13 video games
out of the 74 manufactured in France in 2005 and 2006
were awarded one or two points. This is a reflection of
the effectiveness of this criterion in achieving the cultural
objective being pursued.

(72)

(73)

(74)

(71)

The third part of the test is entitled ‘cultural content’. The
criterion which awards three points to video games based

(75)

(18) OJ C 9, 13.1.2007, p. 1.
(19) Article 4, point 3: ‘ “Cultural expressions” are those expressions that
result from the creativity of individuals, groups and societies, and
that have cultural content.’

(20) CSPLA study (Commission sur les aspects juridiques des œuvres multi-
‘The legal regime for multimedia works:

médias) of 26 May 2005:
Copyright and legal certainty of investors’.

on a narration can be regarded as a cultural criterion: it
requires the video game to be based on a scenario and a
story,
thereby excluding pure simulation games (e.g.
sport or combat games), the cultural nature of which
would be debatable. Preference can thus be given here
to video games which are closer to films and the cultural
content of which thus seems more evident.

it

is an indication of

The criterion that awards two points to video games with
a production budget 50 % of which is devoted to artistic
expenditure may also be regarded as a relevant cultural
the special
criterion in that
importance attached in the production of a video game
to the design, scenario, dialogue and music, which are
important aspects of any conclusion to the effect that,
overall, a video game has a cultural content. With such a
criterion, therefore, preference can be give to such games
as opposed to those that are more technical, such as
sports games or games of pure simulation, where the
cultural aspect
less evident. The aforementioned
Unesco Convention also refers to the artistic dimension
when defining cultural content (21).

is

artistic

can be

that 50 % of a game’s
ISFE has expressed doubts
production expenditure
in nature,
stressing that software expenditure generally accounts
for 70 % of production costs. This argument does not
call into question but, on the contrary, would reinforce
the validity of the criterion in so far as it would provide
confirmation that
this criterion makes for a stricter
selection of video games.

the Commission would note that

In any event,
the
difference between the figures provided by ISFE and the
assertion by the French authorities that certain games can
be characterised by artistic expenditure that accounts for
more than 50 % of production costs can be explained by
the different types of expenditure included. For instance,
expenditure eligible for the tax credit corresponds only to
the expenditure on conception and creation. It does not
include all the production expenditure and excludes, for
example, expenditure on debugging and downstream
testing, and this might have the effect of increasing the
share of artistic expenditure.

It should also be pointed out that the French authorities
provided precise examples of detailed budgets for video
game manufacturing which show clearly that artistic
expenditure may account for the bulk of expenditure.
from
This
certain third parties, including APOM, which stresses that

is also corroborated by the

comments

(21) According to point 2 of Article 4, ‘ “cultural content” refers to the
symbolic meaning, artistic dimension and cultural values that
originate from or express cultural identities.’

6.5.2008

EN

Official Journal of the European Union

L 118/25

and

substantial part

the creative features of a video game nowadays play a
preponderant
in the works
concerned and that
the technological and software
features are simply tools at the service of these creative
for only a small
features and, on average, account
proportion of
the Commission
notes that so-called software expenditure can fluctuate
with the console cycles and may indeed be higher at
the beginning of a cycle.

the cost price. Lastly,

(76)

For the reasons set out above, the criterion based on the
share of artistic expenditure in the budget appears as a
relevant criterion for assessing the cultural content of
video games in the case under review.

(77)

cultural

social or

The criterion awarding one point if the game deals with
political,
to
specific to
European citizens and/or
European societies is itself also relevant
in so far as
those values are the expression of Europe’s cultural iden-
tities.

issues of
reflects values

relevance

it should first be noted that

(78) As regards the two language criteria (original version of
the scenario in French, and original version of the game
published in at least three languages of the European
including French), which award two points in
Union,
total,
they are virtually
always met in the case of the games covered by the
simulation presented by the French authorities and that,
in this respect,
they are relatively non-discriminatory.
Second, certain reservations can be expressed regarding
their actual relevance when it comes to assessing the
cultural content of a video game. Without in any way
importance of
challenging the fundamental cultural
language,
it would seem that this plays a less essential
role in the cultural nature of a video game than, for
example,
It would
in the case of a film or a book.
the language of a video game can be
seem that
changed without affecting the integrity of
the work,
something which is not the case with the dubbing of a
film or the translation of a book.

(79)

The fourth part of the selection test comprises the criteria
linked to the location of expenditure and the nationality
of the creative collaborators. Although the contribution
made by European creative collaborators may have an
indirect effect on the European cultural nature of a
video game, the location- and nationality-related criteria
still have no direct link to the cultural content of eligible
video games given the characteristics peculiar to the
‘UK Film Tax Incentive’
video game sector.
decision, the Commission came to the same conclusions
regarding similar criteria applied by the UK authorities in
connection with a tax credit scheme.

In its

(80)

(81)

(82)

(83)

The fifth part of the test comprises the criteria related to
editorial and technological
innovation, which are more
directly concerned with the software components of
video games, the non-cultural nature of which has,
in
any case, been underscored by ISFE. This argument can
be accepted and there is no reason to regard these criteria
as being relevant when it comes to assessing the cultural
content of eligible video games.

It thus transpires that 14 out of a maximum of 22 points
(12 points if the language criteria are not taken into
account) are awarded in connection with criteria that
can reasonably be regarded as aiming to promote
culture within the meaning of Article 87(3)(d) of the
Treaty. They therefore account for more than half of
the available points. The Commission has also considered
the extreme hypothetical situation where a game would
be awarded maximum points for the criteria which may
be regarded as not being relevant
from a cultural
viewpoint and for the language criteria. Such a game
it would still
would be awarded 10 points. And so,
need to obtain a further 4 points on the basis of the
criteria that are relevant from a cultural viewpoint in
order to exceed the 14-point eligibility threshold.
In
this ‘extreme hypothetical situation’ would
any event,
not seem to arise all that frequently: of the 74 video
games covered by the simulation provided by the
French authorities, only 7 fall
into that category, of
which 6 were eligible but were all awarded more than
4 points on the basis of the relevant cultural criteria (and
6 points on the basis of the language criteria).

the Commission notes

this new
In addition,
selection test based on a number of detailed criteria
reduces the risk of subjectivity in the assessment of
video games carried out by the committee of experts.

that

Lastly, the Commission would point out that the new
selection test proposed by the French authorities is
more restrictive than the test notified initially. For
example, on the basis of the criteria described in the
decision implementing the procedure,
the simulations
provided by the French authorities show that 49 % of
video games manufactured in France in 2005-2006
would have been eligible, as against 31 % on the basis
of the current test. As the Commission emphasised in its
decision initiating the procedure, ‘if the measure resulted
in support for the manufacturer of a large proportion of
it had been
video games,
deflected from its
avowed objective of promoting
culture and that it could therefore have an industrial
objective’ (22). Given the characteristics peculiar to the
that close on 30 % of
video game sector,
games are selected indicates that the objective of the
measure
simply an industrial objective of
providing support for a specific sector.

then appear that

it might

the fact

is not

(22) Paragraph 42.

L 118/26

EN

Official Journal of the European Union

6.5.2008

(84)

It has, therefore, to be concluded that the French auth-
orities have drawn up verifiable national criteria guaran-
teeing that the content of video games eligible for the tax
credit is truly cultural and that the aid measure thus
meets a genuine objective of promoting culture.

for

account

for
large extent, a global market on which games
consoles
is
It
dominated largely by manufacturers of game consoles,
who impose on video game manufacturers an authorisa-
tion and licensing system that accounts for up to 20 % of
the game’s final price.

two thirds of

sales.

Is the measure designed in such a way as to meet this cultural
objective?

(88)

(85)

The Commission must make sure that the measure is
appropriate, that it has a sufficient incentive effect and
that it is proportional.

In addition, the market is characterised by a fragmen-
tation of technical standards and a lack of interoper-
ability. Demand is determined by regular renewal and
destruction, on average every six years, of household
video game equipment (consoles and PCs).

A p p r o p r i a t e i n s t r u m e n t

(86) On this first point, the French authorities have explained
that, in their view, the tax credit is the most appropriate
instrument for meeting the objective being pursued. They
have looked into the possibility of notifying this measure
under
the Community framework for State Aid for
research and development and innovation, something
also suggested by ISFE, but they ruled it out notably
because, with this legal basis, the measure could not be
linked to the cultural content of video games and there
was no way of ensuring some diversity in the supply of
video games. Nor would it have been possible under the
framework to grant the same level of aid as the tax
credit. The Commission acknowledges that, as designed,
the tax credit actually allows public support to be chan-
nelled to games with a cultural content and that, in this
regard, it appears to be an appropriate tool for achieving
the cultural objective being pursued. The Commission
would also stress
it has already come to the
conclusion in previous decisions that measures in the
form of a tax credit are compatible on the basis of
Article 87(3)(d) of the Treaty (23).

that

(89) Accordingly, the video game industry is forever in a start-
up phase, with very short production cycles
and
investment. Moreover, production costs can
substantial
be written off on the publishing market, unlike,
for
example, the production costs of films, which can also
be written off against broadcasting rights or DVD sales.

(90)

for

to the

according

connection,
information
In this
provided,
the French video game industry is, as a
general rule, characterised by small production studios
(fewer than 200 employees) that do not have sufficient
therefore, dependent on
financial capacity and are,
financing their activities. The system
publishers
whereby development
remunerated by
are
studios
publishers is a function of sales, once the production
costs advanced by publishers have been met. The
French authorities have emphasised that the number of
‘cultural’ video games that could have met the selection
test for the tax credit has been falling steadily since 2000.
As an example, they stress in particular that fewer and
context
fewer video games have had a historical
(Versailles, Pompei, Egypt) since the production studio
specialising in this genre, Cryo Interactive, closed down.

I n c e n t i v e e f f e c t

(87)

The analysis of the video game market reveals a trend
towards concentration of supply that is detrimental to
independent production studios
to the
diversity of supply (24). The video game market is, to a

and hence

(91) A tax credit based on the criteria described in Section 5
of this Decision should promote the production of video
games with a cultural content as opposed to games that
are purely for entertainment in that it would reduce the
former’s production costs. There is, therefore, reason to
conclude that the measure is liable to have a sufficient
incentive effect relative to its objective.

(23) See, for example, the Decision of 16 May 2006 in Case N 45/06 —
Tax credit for phonographic production (OJ C 293, 2.12.2006,
p. 6) and the Decision of 22 March 2006 in Cases NN 84/04
and N 95/04 — Aid schemes for the cinema and the audiovisual
sector (OJ C 305, 14.12.2006, p. 12).

(24) Sources: Digital broadband content — the online computer and
video
industry, OECD, DSTI/ICCP/IE(2004)13/FINAL,
published on 12 May 2005; report by Mr Fries for Mr Francis
Mer, Minister for Economic, Financial and Industrial Affairs, and
Ms Nicole Fontaine, Minister responsible for Industrial Affairs:
Proposals
for developing the video game industry in France
(22 December 2003).

game

P r o p o r t i o n a l i t y

(92)

The Commission notes that
the aid intensity is only
20 %, which is relatively low compared with the aid
intensities normally authorised in the cultural field. For
instance, the intensity normally authorised for the cinema
or audiovisual production is 50 %.

6.5.2008

EN

Official Journal of the European Union

L 118/27

(93)

The Commission would also note that the eligible costs
base is correct and defined in detail: thus, only operating
expenditure excluding personnel costs and depreciation
of assets other than buildings actually incurred by the aid
beneficiary will be taken into account. This type of
expenditure is no longer set at the flat rate of 75 % of
personnel costs.

(94)

It should, therefore, be concluded that the measure is
also proportional. Moreover, since only the costs effec-
tively incurred in the manufacture of eligible games is
the concern expressed by ISFE
taken into account,

regarding the risk of cross-subsidisation between cultural
and commercial games is no longer justifiable.

Are the distortions of competition and the effects on trade
is
limited in such a way that
positive?

the overall aid assessment

(95) On the basis of the figures provided by the French auth-
orities,
it transpires that the main competitors on the
video game market are Japanese or North American
manufacturers. Thus,
the market shares of European
publishers in 2005 on the main Europe on markets
never exceed 20 %, averaging 18 %, as the following
graph shows:

(96)

These figures are corroborated by the list of the 50 most
popular games in France in 2006 provided by ISFE: 21
of them are published by Japanese firms, 19 by US firms
and 10 by European firms. They are also borne out by
the ranking of video game manufacturers by turnover,
prepared by the European Audiovisual Observatory in
leaders are
2003 and showing that
Japanese and US firms.

the four market

(97)

It stands to reason that the market shares of French
publishers, who indirectly benefit from the tax credit in

the publishing market

so far as they publish video games manufactured by the
studios eligible for the tax credit, are smaller: in 2005 the
and
three main French publishers, Ubisoft, Atari,
VUGames, accounted for 6,4 %, 3,5 % and 4,4 % respec-
tively of
for video games
comprising the five Member States indicated in the
above graph. Moreover, the studios of those publishers
that are established in France account for only a small
proportion of their market shares: 25 % for Ubisoft (or
the market comprising those five Member
1,6 % of
States), 10 % for Atari
and 2 % for
(or 0,35 %)
VUGames (negligible share).

(98)

(99)

L 118/28

EN

Official Journal of the European Union

6.5.2008

It should also be emphasised that a relatively small
proportion of the video games manufactured in France
will be subsidised: the simulation carried out for video
games manufactured in France in 2005-2006 shows that
only 30 % of them could, in theory, be eligible for the
tax credit.

in that the video game market is a large market worth
some USD 21 billion in 2003 and one that is enjoying
high long-term growth put at 13 % a year and one on
which prices are relatively fixed.

impact of

The point should also be made that the associations of
video game manufacturers that submitted comments
following the initiation of
the procedure, and these
include TIGA, GAME, APOM and EGDF, also under-
the measure on their
scored the small
national industries. For instance, EGDF, which represents
500 studios in 10 Member States, stressed in particular
that, as notified, the measure will, by permitting 20 %
financing of between 15 and 30 projects over two years,
create only a small distortion as 1 500 video games are
marketed each year. These comments are all the more
significant in that they concerned the project described in
the decision initiating the procedure and the scope of
which has since been reduced.

(100) The measure could have had a potentially negative effect
on trade identified by GAME in that the subcontracting
costs were not included in eligible costs in France’s initial
proposal. This would have prompted the beneficiaries to
internalise their costs instead of resorting to subcon-
tracting, which is common in this sector. This could
have been detrimental in particular to firms established
in other Member States and thus to intra-Community
trade. However, this negative effect is ruled out in so
far as the French authorities have agreed to include
subcontracting costs in eligible costs up to a limit of
EUR 1 million per project.

(101) The Commission takes the view that this limit, which is
justified for budgetary reasons, is acceptable in the case
under review in so far as, in practice, it is not liable to
affect most of the video games manufactured in France.
According to the information provided by the French
authorities, 64 of the 74 video games covered by their
simulation had a production budget of less than EUR 2
million, eight had a budget of between EUR 2 million
and EUR 5 million, and two had a budget in excess of
EUR 5 million. Given the average size of a production
budget, a ceiling of EUR 1 million for subcontracting
expenditure does not appear
to significantly
hamper
to subcontracting. Depending on
changes in the production budgets for video games in
France, the Commission reserves the right to review this
ceiling when the aid measure is re-notified within four
years
the
commitments entered into by the French authorities.

implementation,

line with

recourse

liable

its

of

in

(102)

In addition, the Commission considers that the impact of
the tax credit on competition will be all the more limited

(103) Lastly,

two of

the Commission notes that

the third
parties pointed to the potentially adverse affect of the
measure on trade and competition. ISFE stated that the
measure might trigger a transfer of investment to France
while ADESE underscored the potentially negative effect
of the measure on the industry in Spain in particular.
They did not, however, provide any statistics or detailed
this
explanation enabling the Commission to assess
potential risk. The Commission also notes that
ISFE
and ADESE represent video game publishers and distri-
butors. As explained in recital 37, the associations of
producers which represent the direct competitors of the
potential aid beneficiaries concluded that such a risk for
competition could be ruled out. The Commission also
takes the view that the development studios eligible for
the tax credit are not in a position to exert market power
over publishers as stated in recital 90. In its comments,
Ubisoft, one of the leading French publishers, stressed the
equally beneficial nature of the aid since those publishers’
financial risks could also be reduced by lowering the
production costs of video games and since supply on a
European scale could be developed.

(104) The Commission considers that the amount of the tax
credit is not such as to affect industrialists’ decisions on
where to locate their investment, given the other para-
meters of such decisions,
including employment and
remuneration conditions. With particular respect to the
measure’s
the
Commission notes on the basis of the graph given in
recital 95 that European publishers’ market share is
lowest
in that country. Contrary to the claim by
ADESE and since it did not provide more detailed data,
it can be considered that this aid measure is not liable to
have a greater impact in Spain than in the other Member
States.

effect on the

in Spain,

industry

(105)

In the light of the foregoing, the Commission takes the
view that the aid will not have the effect of strengthening
the market power of beneficiary firms or of hampering
dynamic incentives for market operators but, on the
contrary, it will increase the diversity of supply on the
market. There are grounds, therefore, for concluding that
the distortions of competition and the effects on trade
that the measure will have are limited so that the overall
aid assessment is positive. Accordingly, the tax credit for
the creation of video games is compatible with the
common market on the basis of Article 87(3)(d) of the
Treaty,

6.5.2008

EN

Official Journal of the European Union

L 118/29

HAS ADOPTED THIS DECISION:

Article 1

The measure planned by France with a view to introducing a tax credit for the creation of video games is
compatible with the common market under Article 87(3)(d) of the Treaty.

This Decision is addressed to the French Republic.

Article 2

Done at Brussels, 11 December 2007.

For the Commission

Neelie KROES
Member of the Commission