German Funds Return to Favor In Film Finance
By RiSHAWN BIDDLE
Staff Reporter
The Germans are back.
German tax shelter funds were the financing of choice for Hollywood studios and producers until last year, when tax officials in that country essentially shut down the film financing industry by announcing they would rewrite the rules.
But a backpedal by the German government has led to a flurry of new fundraising for film projects. So the spigot has been reopened.
News Corp.’s Twentieth Century-Fox film unit is raising 2.4 billion euros ($2.8 billion) through a film fund sponsored by Germany’s IdeenKapital, which helped finance “The Fast and the Furious.” The fund will help finance European advertising costs for at least three unnamed films.
Among other deals in the works is the Equity Pictures fund being launched with the backing of the entertainment finance division of Comerica Inc. and a 250 million-euro ($290 million) fund sponsored by film fund promoter Hannover Leasing. It will be used to back a slate of films being produced and distributed by General Electric Co.’s Universal Pictures.
“The money’s been gone for a while, but now it’s back,” said Oliver Hengst, a managing director at Dutch banking giant ABN Amro.
German tax shelters long have been popular for both investors and producers. In the last six years, these funds have raised $8.1 billion for film projects, according to L.A.-based film financing outfit Screen Capital International.
Britain and Australia offer similar tax shelters, which are usually structured as sales-leaseback partnerships that buy the rights to a film from a producer, then lease it back to the producer for as long as 15 years. But the British and Australian funds only gain a tax credit from locally produced films; the German funds were able to hand a tax break to its investors even if a film was made on U.S. soil.
The fundraising ceased in September 2002, when the German government announced it would apply new restrictions. For nearly a year, the threat of retroactive application scared off investors and Hollywood, which turned increasingly to British funds for financing.
As it turned out, the fears were overblown. The German government announced additional restrictions on new film funds in August, but they weren’t retroactively applied to existing tax shelters. And they can still be structured to hand a tax break to investors even if they backed films made in the U.S., according to Schuyler Moore, a partner with the L.A. office of Stroock Stroock & Lavan.
One of the few modifications that concerns some funding outfits is a rule that requires tax shelters to form an investor committee to determine which films will be funded. But producers can skirt that requirement by offering a large selection of films from which that panel can choose.
