BERLIN — German Chancellor Gerhard Schroeder got the Cabinet greenlight Wednesday to nix the tax-haven film funds that funneled almost $1.7 billion to Hollywood last year — but his plan faces an uphill battle for parliamentary approval.
His draft proposal shutters nearly all film funds in their current form as of close of business today. Local investors rushed to take advantage of last-minute offers in funds launched before March 18 at the likes of VIP Medienfonds, Boll, Apollomedia and Ideenkapital.
Schroeder wants to finance sharp cuts in corporate and inheritance taxes by closing tax loopholes, including the film funds, which have long helped high-bracketed Germans reduce the taxes they pay on their income.
VIP advised its clients to invest immediately in its VIP Medienfonds 5 and 6.
Helmer and fund manager Uwe Boll (Bloddrayne) reported orders of up to E1.5 million ($1.94 million) for his Boll 7 and 8 funds during lunchtime Wednesday.
Fund industry reps have decried Schroeder’s plans for months, predicting doom and gloom for Germany’s capital investment business and for Hollywood producers.
However, many believe the new law will not make it through Germany’s upper house of parliament, the Bundesrat.
Andreas Schmid of VIP Medienfonds — which financed “The Punisher” and “The Upside of Anger” as well as upcoming titles “The Illusionist,” with Edward Norton, and Sean Penn starrer “All the King’s Men” — said approval of the draft was a foregone conclusion. “Everyone knew what was coming,” he added.
Schmid stressed that the proposal still had to go through parliamentary review, and the final draft could end up looking very different or vetoed altogether.
Fund execs are hoping to convince politicos to back a model that would allow them to raise money for film productions provided around 10%-15% of the funds were spent on German productions. Only about $130 million of the $1.7 billion raised last year went to local film and TV productions.
In addition, at least one legal expert has offered hope of getting around the new regulations, which limit the number of losses that can be deducted from personal income to a maximum of 10% of the fund investment. Since film funds normally generate much higher losses, they would no longer offer investors an incentive.
Meanwhile, Schroeder is on rocky ground politically.
Although the opposition Christian Democratic Union supports the tax reforms in principle — the measure is widely seen as necessary to make Germany more competitive in Europe — it has little appetite to support Schroeder.
His SPD party looks likely to lose a May 22 state election in North Rhine-Westphalia to the CDU. That would give the opposition a bigger majority in the Bundesrat and make Schroeder a lame duck chancellor until next year’s general election.