German Media Funds To Lose Tax Breaks Under Government Plans

by Ulrika Lomas, Tax-News.com, Brussels

13 August 2003

Changes to German tax rules could spell the end of the country's popular media funds, used by Hollywood producers as a major source of funding for big budget productions.

The funds are popular amongst wealthy German investors as the tax advantages are very attractive. Under current rules, 100% or more of costs can be written off against taxes. According to reports, as much as 20% of total production budgets in Hollywood come from German media fund sources.

However, with the German government facing arguably its worst economic crisis since reunification and hungry for extra tax revenue, the rules are about to be changed in order to make it more difficult for investors to claim such large tax breaks. The new proposals call for investors to take an active part in choosing the screenplay and casting the movie in order to qualify for the tax breaks.

"This includes all significant measures in film production, in particular selection of the film's plot, the screenplay, the cast, calculation of the costs, the screen plan and financing," the new rules state.

Naturally, this is unlikely to be an attractive proposition for Hollywood producers, and many fear that this will be the death knell for this particular type of fund. "We will see a massive slump in investments in big US film projects," Michael Oehme, head of the Federation of German media funds predicted, speaking to Reuters.

However, others are more upbeat, and foresee the funds channelling their money into different types of production, such as small budget movies and television projects.

"I doubt that it makes sense to have dentists and lawyers decide on whether to have Richard Gere star in a film or a German actor," Andreas Konle, chief financial officer at Internationalmedia (contributors to the making of Terminator 3) told Reuters. "But we think the changes will be manageable and media funds will continue to exist."

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