French tax credit to be extended to PEGI 18+ video games

The French government has just published secondary legislation allowing developers of 18+ video games to benefit, under some conditions, from the French tax credit system to favour the creation of video games.

The French tax credit system intended to promote the creation of video games was introduced into the French legal system by the 2007 Finances Act (Act n°2007-1824 of 25 December 2007). To benefit from such tax credit, the developers had to comply with several conditions among which

• production costs exceeding €100 000, and
• the proof that the video game constituted a “contribution to both French and European creative work and diversity” particularly in light of the game’s “quality, novelty and innovative or original concept ” (Article 220 terdecies of the French General Tax Code).

Compliance with the applicable conditions allowed video game companies to be granted a tax credit equivalent to 20% of the game’s production costs including wages, social security contributions and general expenditure as a means to promote French creative work in the video games sector, this tax credit being capped at 3 million Euros per fiscal year per company.

However, not all videogames could benefit from this tax credit system. Indeed, in addition to video games displaying pornographic sequences, “highly violent” video games were excluded from the benefits of the tax credit system under the 2007 legislation, which expressly excluded from its scope any games rated 18+ according to the European PEGI classification.

In recent years, French authorities have been made increasingly aware of the contributions video games for more mature audiences can make to French and European creative works in that such video games tend to cover complex and innovative issues as well as tend to build more ambitious narratives. In a field where they also consider “European values and heritage” to be “underrepresented” , the French authorities deemed the incorporation of video games for mature audiences into the tax credit system beneficial for both the French and European creativity and competitiveness in the global video games market.

Therefore, reforms were initiated by the adoption of the Finances Act n°2013-1279 of December 29th 2013, whose amendments to the former credit system were approved by the European Commission in 2014. Despite the tax credit being qualified as a “State aid“, the measures were deemed compatible with the European internal market as they aim to promote culture while having a proportional effect on EU market trade.
Following the Commission’s green light, the new credit system has now come into full force with the recent and much awaited publication of Decree n°2015-722 of June 23rd 2015 (the “Decree”).

The reform’s key points consisted in the inclusion of video games with mature content in the tax credit system provided they comply with the newly-introduced “violence context” (Decree n°2015-722 of 23 June 2015 – article 4)  criteria detailed in the Decree. As opposed to the former “highly violent” video games exclusion, 18+ games would now be eligible to receive the 20% tax credit on sums invested for their conception depending on the degree of violence displayed to the player.

Accordingly, a game will be deemed excessively violent for the purpose of the Decree and will not benefit from the tax credit if three of the following elements are simultaneously present in one or several sequences of the video game:

• the violence displayed is disproportionate and gratuitous,
• the violence displayed is crude and detailed in a visually realistic environment, 
• if the two above criteria are met, the violence displayed is quantitatively emphasised, 
• the violence displayed cannot be avoided by the player, and
• violence is encouraged.

In other words, an 18+ video game could benefit from the tax credit system provided that it contains in each of its sequences three or less of the criteria above and comply of course with the other requirements such as the creativity criterion which were not modified by the 2015 reform.

The system being subjected to prior declaration, newly eligible developers are to submit their application to the CNC (“Centre National du Cinéma et de l’Image Animée”).

The extension of the tax credit system to 18+ games has been welcomed by the sector as now a wider range of projects could be subsidised. This means that not only studios capable of carrying out large-scale projects, but also small independent developers who may specialise in 18+ games will for the first time benefit from this support boosting the sector’s competitiveness at the French and European level.