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Tax overhaul could kneecap funds

Chancellor backtracks on recent pact with film industry reps

BERLIN — German Chancellor Gerhard Schroeder recently unveiled a package of measures designed to revive the country’s ailing economy, but the proposals could mean the end of Teutonic media funds, which last year raised some $1.7 billion for Hollywood productions.

It’s not the first time private investment funds have faced possible extinction, but this time their elimination is central to Schroeder’s ambitious plan, which calls for sharp cuts in corporate tax rates, from 25% to 19%, as well as a radical overhaul of the tax system. Closing tax loopholes, including media funds, would help offset the tax reductions, which the government hopes will spur the country’s languid economy.

The chancellor’s proposals fly in the face of a recent agreement between Schroeder and film industry reps during the Berlin Intl. Film Festival to review a tax break proposal aimed at enticing investors to finance more German productions.

With Schroeder’s popularity sliding in the polls, unemployment has become the central issue as the chancellor attempts to stave off a victory by the conservative opposition in a general election expected next year. The number of jobless reached 5.2 million in February, the highest since 1945; that’s clearly overshadowing the needs of Germany’s movie business and the future of film funds.

The chancellor’s proposals have local fund operators fuming at what they see as Schroeder’s backtracking on his agreement with local industryites.

Fund execs also have taken issue with figures released by the government regarding the amount of tax-free capital that flows oversees through film funds, which put the sum at E3.5 billion ($4.6 billion).

Tax losses of $4.6 billion from media funds would mean an annual volume of more than $9 million, says Andreas Schmid, head of VIP Medienfonds. “In reality, German film funds raised only $1.7 million, meaning that only about $660 million was temporarily unavailable to tax authorities. Since most of the German funds are guaranteed, that $660 million will eventually be paid back and taxed.”

Schmid describes Schroeder’s targeting of film funds to finance his corporate tax scheme as a blind attempt to be seen to be doing something, rather than a real effort to solve the country’s economic problems. Calling the move a miscalculation, Schmid predicted the plan would result in the elimination of more than 10,000 jobs in the film, exhibition, consulting and fund industries.

“Some of the biggest box office hits of the past few years have been financed through German film funds, including the ‘Lord of the Rings’ films and ‘Mission: Impossible,'” Schmid says. “Those films generated huge grosses here — half of which remained in German theaters, which employee thousands of people.

“Some major studio films like “The Bourne Supremacy,” which was financed by Hannover Leasing, are shot in Germany and also benefit the local economy.”

Shutting down film funds would mean a serious blow to the local industry. Of the $1.7 billion raised for film production last year, about $130 million went into German productions such as recent hits “Seven Dwarfs” and “Der Wixxer.”

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