New tax rebates ring in '07 for Germany

Reaction mixed as producers prep for new finance model

After a year of arguing, complaining and, finally, negotiating, the German film industry has agreed on a new system to finance films.

The new law, which goes into effect Jan. 1, will provide €180 million ($238 million) in the form of tax rebates over three years to feature films.

"It is almost a miracle that we managed any law at all, so I'm very pleased," film financier David Groenewold of German Film Prods. said. "When you think that the €60 million ($78.7 million) a year is intended as 20% gap financing for productions, we are talking about €300 million ($393.5 million) worth of German productions annually. A lot more films that couldn't get made in the past will now be able to get that final 20%."

Groenewold's optimism is echoed by the majority of German producers, happy that there is now a clear set of rules for receiving automatic tax relief for films shot in Germany.

But to qualify for a rebate under the new system, films will have to pass a German certification test -- a points system that favors German-language projects with German casts and crews.

Sytze van der Laan, managing director of local production giant Studio Hamburg, said the points system will make it more difficult to produce international (i.e. English-language) productions out of Germany.

Studio Hamburg had intended to make the sequel to its English-language children's film "The Three Investigators" in Germany but has shifted production to South Africa after it became clear the film was unlikely to qualify for tax relief.

"Here, we have a German film that we, a German company, want to shoot in Germany and it doesn't qualify," van der Laan said. "I consider that a pretty big loophole in the system."

Studio projects looking to shoot in Germany could also have a tough time qualifying for relief.

A big-budget feature like "Perfume: The Story of a Murderer," which features a German director (Tom Tykwer) adapting a German novel (by Patrick Sueskind), would have little trouble qualifying. A film like "V for Vendetta," an adaptation of a British comic book featuring an Anglo-American cast that Warner Bros. shot in Babelsberg, would be more problematic under the new criteria.

Other critics point to conditions such as the requirement for productions to have a distributor in place and a guaranteed theatrical release of at least 30 prints in Germany. Though the conditions have been altered for low-budget productions, to allow rebates for films with a minimum 15-print release, many believe the new system will heavily favor established German producers like Constantin and X Filme, which have in-house distributors to release their films.

"It is much harder for smaller independents," Christoph Friedel of Cologne-based Pandora Film said. "We have our own distributor too, so we can just manage to meet the criteria. But for many, it's nearly impossible."

But criticism notwithstanding, the entire industry agrees the new system is preferable to the legally dubious film fund model it replaces.

As producers across the country scramble to submit their projects under the new financing regime, the managers of several of Germany's top film funds face investigation on allegations of widespread fraud.

The case everyone will be watching will be that of Andreas Schmid, former head of Germany's largest film fund, VIP. After spending more than a year in jail, Schmid will finally have his day in court next year now that Munich state prosecutors have officially charged him with tax evasion and fraud.

According to the prosecutor's office, Schmid invested only a fraction of the hundreds of millions raised by VIP in productions like "Perfume," "All the King's Men" or "Lucky Number Slevin." The bulk, according to authorities, was placed in a secret bank account as a guarantee to investors that they would not lose money even if VIP's films tanked.

If the state can prove its case, VIP investors could be forced to pay back hundreds of millions of euros in tax write-offs.

So while 2007 will be the year German film financing goes legit, it could also be the year when the murky details of fund deals long past finally come to the surface.