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HMRC internal manual

Video Games Development Company Manual

HM Revenue & Customs
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Avoidance and disclosure: avoidance - valuation of core expenditure

S1217CL Corporation Tax Act 2009 (CTA 2009)

The extent to which Video Games Tax Relief (VGTR) is available is dependent on the amount of core expenditure on a video game. The minimum amount of core expenditure that is European Economic Area (EEA) expenditure must be 25%.

Furthermore, because the rate at which surrenderable losses can be exchanged for a tax credit is higher than the rate of Corporation Tax, it may be the case that the core expenditure is overstated artificially.

To prevent the size of the budget being artificially distorted, in determining the size of a video game’s core expenditure:

  • where goods or services included within the video game core expenditure are being supplied as a result of transactions entered into (directly or indirectly) between connected persons, and
  • the amount of core expenditure might have been expected to be less, or greater, if the transaction had been between independent parties, then
  • the amount of the expenditure should be established by reference to what the arm’s length value would have been had the parties been unconnected.

The rules for connected persons which should be applied for this purpose are those set out in S1122 and S1123 CTA 2010.