Biz taxed to the max

Interpretation of law creates nightmare for players

LONDON — The tax man just made it tougher for German investors to put their money into the international film biz.

In fact, the long-awaited interpretation of the Jan. 1 German tax law for the country’s film and television funds is a veritable nightmare to industry players, including those in Hollywood, which has long relied on German funding on co-productions.

Perhaps the most withering part of the law, according to media lawyer Christof Schmidt, of PriceWaterHouseCoopers’ Munich-based law firm Veltins, is the ruling that German companies are no longer allowed to offset costs on films in which they have not been involved from the start. The ruling is tied to German copyright law.

“We are pretty shocked,” says Jan Fantl of producers fund Apollo Media. “Pretty much everything you can do to stop international film productions being brought to Europe has been done (by this law). It has also been made more difficult to produce European films in Europe and more difficult to produce international films internationally.”

Complicating matters is a residency-establishment ruling that kicks in once a company has been producing abroad for six months. The ruling dictates that German companies can’t offset costs incurred abroad against tax in their home territory.

The residency ruling may also apply to foreign companies producing pics in Germany. Such companies now appear to be liable to pay German taxes, unless a tax treaty between their country and Germany says otherwise. Germany has recently seen an influx of major U.S. productions shooting there, such as “Enemy at the Gates,” “Resident Evil” and Alan Rudolph’s “Investigating Sex.” It now remains to be seen how such films will be affected.

A further issue is that companies will have to pay a tax on profits incurred in their home market before they can amortize costs incurred in another land. Once a profit has been made in that territory, they can write off the costs. Further, a film’s costs must be written off over the staggering period of 50 years, unless the production company can prove its exploitation time frame is less.

“Basically, it is going to be easiest for German-German productions and for productions which are purely backed by one company,” says PriceWaterHouseCoopers’ Schmidt. “Companies are going to have to try to avoid the (tax) problems involved in permanent residency, but we are convinced that there are ways around it.”

But Cinerenta chief Rainer Beinger says there are ambiguities surrounding the residency issue. According to Beinger, it is unclear whether the stipulation under permanent residency that allows writing off costs only where the film is produced is meant just for film funds or for producers as well.”The idea of the decree was to give some clarity to the law,” Beinger says. “There isn’t complete clarity, but basically if you produce by yourself you are OK. Permanent residency is going to make producers’ lives difficult.”

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