German media funds, the tax shelter financing tool that pumped $1.7 billion into mainly Hollywood productions last year, soon could be history as the German government fast-tracks plans to close tax l

CANNES, France (The Hollywood Reporter) -- German media funds, the tax shelter financing tool that pumped $1.7 billion into mainly Hollywood productions last year, soon could be history as the German government fast-tracks plans to close tax loopholes in a bid to revive the country's ailing economy, industry leaders warned at MIPTV, the audiovisual and digital content market.

The government's plan isn't directed at media funds, but it could eliminate the clause in the German tax code that allows taxpayers to write off investments in film funds, observers said.

"The (German) government is pushing for this. It could go through before summer and then it would be game over," Andreas Schmid, head of fund VIP Medienfonds, said in an interview.

VIP, Germany's largest independent media fund, has bankrolled such U.S. productions as "The Punisher" and "Monster" as well as German efforts like the comedy spoof "7 Dwarves -- Men Alone in the Forest."

"Behind closed doors, German finance minister Hans Eichel has sounded the death knell for the film funds," said Michael Oehme, chairman of the German Association of Media Funds. "This law will mean by the end of the year, most German funds will be shut down."

On April 11, the film commission of Bavarian conservative party, the CSU, attacked the government proposal, saying in a press release that the film funds were "an essential instrument for the financing of German and European films" and warned that the proposal would lead to a loss of jobs in the German and European film industry.

Of the €1.5 billion ($1.7 billion) raised by German film funds last year, about €1.1 billion ($1.4 billion) went to finance productions outside Germany, mainly Hollywood features, Schmid said.

"But that means €400 million ($520 million) stayed in Germany," he said. "Of that, €300 million ($391 million) went to fund consultants and advisers and around €100 million ($129 million) to German productions."

The government proposal also appears to fly in the face of an agreement reached between German Chancellor Gerhard Schroeder and film fund executives at February's Berlin International Film Festival.

At that meeting, the funds agreed to introduce a minimum local expenditure for films they back, a move fund managers say would pump hundreds of millions of dollars into the German industry.

The chancellor and the film industry also set up a working group to discuss proposals to ensure more German tax money stays in Bavaria and Berlin and less flies off to Hollywood.

According to sources, one of the proposals the group is discussing is making German films exempt from the new law, but closing the tax loophole for any foreign film investment. The group is set to meet again by the end of April.

But Schroeder is under pressure to make big changes fast to reverse the economic decline that has seen Germany's jobless total rise to more than 5.2 million, the highest level since 1945, and economic growth grind to a halt.

"In this climate, telling voters, 'We are preventing billions of tax dollars from leaving the country' makes good copy," one fund executive said. "It is hard to stand up and argue for film funds."

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