Nov 24, 2005, 14:37 GMT
Berlin - In one of its first fiscal decisions, the new German government closed Thursday a tax loophole that had been used to invest hundreds of millions of dollars in Hollywood movies.
The tax rule was changed retroactively, starting November 11. While the cabinet decision still needs confirmation by legislation, revenue authorities are likely to argue that accountants had fair warning from that date that the tax break had expired.
An estimated 2 million wealthy Germans per year have steered assets into investment funds that backed movie-making, windmill electricity generation, computer-game authors, shipbuilding and other sectors needing tax shelter.
Under the new rules, funds whose principal purpose is to avoid taxes and which were set up later than November 10 lose the break.
The rich investors, known in the entertainment industry as 'angels', formed syndicates to pay for film productions. The immediate objective was to write an accounting loss, which reduced investors' tax bills on other income.
If they did chance to back a Hollywood blockbuster, they emerged with big profits, but did not have to return the earlier tax credits.
The flow of money to Hollywood was an unintended consequence. Berlin had hoped to promote German films. Germany believes it will ultimately boost revenues by 2.1 billion euros per year once all the tax-avoidance schemes expire.
Investment brokers have rushed this month to close last-minute deals, but government spokesman Ulrich Wilhelm said government lawyers had advised that the retroactive date was legally watertight.
A cabinet majority voted November 10 for the change, but a retiring Greens minister cast a veto.
Wilhelm said the new government of Christian Democrats and Social Democrats would find other ways to back the German cinema industry.
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