VIP: investigations & productions

German gov't puts halt on film funds, future

Teuton tax laws are among the most complicated in the world. For a long time German film fund VIP Medienfonds utilized the intricacies of the tax system to create a lucrative gravy train that led straight from Munich to Hollywood.

However, now that the German government has put a lid on the funds, it seems like VIP topper Andreas Schmidt is trapped in the legal maze he once maneuvered so cleverly.

He is under investigation for tax fraud and defrauding his investors and was jailed six months ago as investigators feared he might flee the country.

“The day after our office was searched, Andreas Schmidt paid himself a certain sum of money, which had previously been approved by our board. Also, 10 days before he’d returned from a business trip to Russia, so he still had a Russian visa. Together, those two factors made the state attorney assume that Andreas Schmidt might run away,” says VIP’s managing director Andy Grosch. He adds that the investigation started when a rival fund alerted the authorities to the possible illegality of VIP’s financial system.

Schmidt’s arrest raises many questions for the industry.

“Because the state attorney still hasn’t released detailed accusations, the other funds don’t know what the actual problem is and are worried that they’re going to be next,” says tax fund specialist Stefan Loipfinger.

Given Schmidt’s flamboyant and outspoken manner, many Teuton bizzers also believe he’s being singled out as a scapegoat for a fund system that’s always been unpopular with the tax authorities.

“We are certainly not trying to make an example here,” counters Anton Winkler, Munich state attorney and spokesman for the prosecution. “This is a specific case, where it was noticed that incorrect declarations were made to the tax office. Sums of money were declared as having been invested into productions in the U.S. when really the majority of these monies stayed with the German banks as securities for their guarantees, which means they were not entitled to tax benefit.”

Grosch sees it differently: “What we did is what all the other so-called defeasance models have been doing for 15 years, which is invest 100% of our money into film production. As far as we can tell at the moment, the problem seems to lie in the fact that the authorities have changed their view of our defeasance model.”

Another film fund, Apollo, is also now under investigation, and the German banks have been asked to divulge information on any such dealings with it.

Grosch says: “The problem is purely a tax matter. It would only be a penal matter if VIP had consciously defrauded its investors against the good judgment of our advisers, which is not the case.”

Winkler, however, says apart from Schmidt, the prosecution is also investigating VIP’s tax lawyers who had been advising setting up its finance model.

While Winkler and Grosch obviously have very different views on the matter, they both agree on one point: There is no danger for producers who are working with VIP — in other words, VIP money is safe.

“It’s business as usual,” stresses Grosch, who’s got money in Sony’s “All the King’s Men,” Paul Verhoeven’s “Black Book” and Todd Haynes’ “I’m Not There.”

“All VIP productions, no matter what stage they’re in, whether they’re finished or currently under way, are not in danger,” he states.

Grosch is optimistic that the legal situation is unlikely to change and that VIP will continue to re-invest the returns from its previous funds. Nevertheless, he’s contemplating the possibility of going into bridge or gap financing.

And while VIP’s plan B has yet to take shape, news regarding Schmidt’s fate should emerge this summer.

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