Titles tripped by tapped-out Teutons

Facing a criminal tax investigation, German’s largest film fund will have no new money to pony up for film projects this year after eagerly pumping $1 billion into the Teutonic-Hollywood lifeline over the past few years.

Munich-based VIP Medienfonds said it is yanking funds VIP 5 and 6 off the market in light of the inquiry, which could result in criminal charges against topper Andreas Schmid and his No. 2, Andreas Groesch.

Move cuts off another source of money for filmmakers and could signal the swan song of German film funds, which have come under bitter attack by many in the government as tax shelters for the very rich.

In 2003, such funds raised almost $2.11 billion, most of which went to Hollywood movies. Last year, the total tally dropped to $494 million.

All told, VIP has bankrolled more than 40 films projects, including “Monster.” Upcoming releases include Robert Towne’s “Ask the Dust” from Paramount, “All the King’s Men” from Columbia and “Stormbreaker” from the Weinstein Co.

VIP financed Lions Gate Films’ “The Punisher” and Warner Independent Pictures’ “The Jacket,” as well as “The Upside of Anger.”

VIP makes its financing commitments in the final quarter of the year, so this year’s pool of films had yet to be named.

No one is saying which films might have received money, but the slate was likely to include “Warriors of the Rainbow,” based on Greenpeace founder Bob Hunter’s book, and “Der stern von Afrika” (The Star of Africa), about German World War II flying ace Hans-Joachim Marseille.

Up in the air

To boot, it’s an open question what will happen to projects that received money from VIP 3 and 4 but whose deals are still in the process of closing. Those projects include “Space Chimps,” from John H. Williams and Vanguard Entertainment; “Outlander,” which the Weinstein Co. is distribbing in the U.S.; “The Girls Next Door,” which Roland Emmerich penned and is producing; and “Taming Ben Taylor.”

Emmerich’s prehistoric adventure pic “10,000 B.C.” also could be in line to receive VIP 3 or 4 funds.

“Until the dust settles, they’re not going to be spending time telling me what’s happening with projects that are waiting to close,” said one film exec in Hollywood who deals with VIP.

Exec and others noted, however, that VIP has contractual obligations that the government’s investigation would have to recognize.

The two funds in question, which until recently were expected to climb as high as $500 million, had raised only $30 million in actuality. That’s because of the abrupt withdrawal of giant Commerzbank as VIP’s main broker over the summer.

Business as usual

At the time Schmid insisted the two funds would continue to raise money from private investors in order to bankroll Hollywood and German productions. He said funds might not near the $500 million raised last year with Commerzbank’s help but would probably hit between $120 million and $300 million.

All that changed earlier this week, when Munich prosecutors raided the homes and offices of Schmid and other top VIP execs as part of their tax accounting inquiry. The investigation involves only the tax accounting structure of funds VIP 3 and 4, but VIP said it was still pulling VIP 5 and 6 off the market.

“Out of a sense of responsibility toward our investors, we do not wish to incur any risk in this regard,” company said in a statement. “We will unwind these funds and reimburse all investors the full amount of their investment, including commissions.”

German tax authorities say funds VIP 3 and 4 were not set up properly, putting investors at risk. VIP funds’ returns have fallen fall short of projections: VIP 3, for example, showed a return of only $645,000 rather than the forecasted $37 million.

VIP insists it vetted the tax structure with internationally renowned tax accountants and that the allegations are without merit.

Part of crackdown

Many are speculating that the inquiry is the latest tactic being employed to crack down on the film funds considering that legislation aimed at closing tax loopholes has stalled.

There are three industries in Germany that are allowed to set up such funds: media, shipping and real estate. Investors forking over their money can have taxes deferred; idea is that when they retire, they will be in a lower tax bracket.

Germany’s finance ministry, along with the socialist SPD government, has wanted to close this loophole for years. The pressure has taken its toll.

The film fund Mediastream IV, from the Dusseldorf-based IdeanKapital, was turned down by the ministry when it applied for its write-offs. IdeanKapital decided not to fight and moved out of film funding.

Given the complexity of Germany’s tax system, both major parties went into the Sept. 18 election vowing to initiate change. Unwilling to alienate core constitutions, however, neither gave any details of immediate plans.

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