LOS ANGELES — To see how Hollywood has turned Germany’s — and Europe’s — crusade against so-called American cultural imperialism to Tinseltown’s Titanic advantage, check out The Punisher, the action film based on a Marvel Comics comic book about a vigilante antihero.
Featuring the raffish American John Travolta as an underworld crime boss and shot in sunny Tampa, Florida, it was co-produced by Gale Ann Hurd, the mastermind behind the Terminator trilogy and will be distributed by the Canadian-American Lions Gate Entertainment and Japanese giant Sony’s film division. Yet German taxpayers will foot part of the production costs for the film, which comes out this month, thanks to a film fund, a German government tax shelter originally set up to promote local filmmaking.
Along with McDonald’s restaurants and Levis jeans, American entertainment has long been blamed by Europe’s political and intellectual elites for imposing a “cretin” culture and weakening native cultures. That consumers actively seek out and enjoy Mickey Mouse and other Hollywood fare doesn’t seem to register.
Neither does the reality that Hollywood recycles as many European cultural staples — think Cinderella, Tomb Raider, and Harry Potter — as it exports all things American. Among the top film directors are German native Roland Emmerich of Independence Day fame and British-born Anthony Minghella, whose Civil War epic, Cold Mountain, was shot in Romania.
TO BOOST LOCAL PRODUCTION and film culture, Europeans have created a dizzying array of subsidy programs and tax breaks. The European Union alone ladled 1 billion euros to film projects in 2000. Countries such as the Czech Republic have also enticed American producers with rebates on costs from using native-born cast members and crew. Theoretically, local talent will apply the expertise and exposure they gained from American filmmakers and apply it to fostering native film sectors.
Then there are film funds which allow local film producers to gain another subsidy while allowing wealthy taxpayers to avoid Europe’s notoriously high income taxes. First authorized by the German government in the 1970s, they have become a sweet form of film finance: British funds alone have raised $7.2 billion for film and television production between 2001 and 2003 according to Martin Churchill, the editor of the Tax Efficient Review, a newsletter on tax shelters, and the co-author of an upcoming book on what he aptly calls “tax schemes.”
Structured as sale-leaseback partnerships, the funds buy the copyrights to a film from a filmmaker, becoming the “producer” of the film. Not that these funds or its investors actually have much say in casting and set designs. They simply lease the rights right back to the filmmaker for 15 years in exchange for a steady payment stream and the chance to immediately write-off their investment.
Theoretically everyone gets a good deal, especially the taxpayers and the native culture, which benefit by having a vibrant film sector. “If done right, it can really work out for everyone,” said Churchill in an interview last year.
But German and British officials forgot about Hollywood’s talent for using other people’s money without giving back much in return. These days, tax deals, such as those provided by New Zealand to finance the Lord of the Rings trilogy, are as much a major consideration for film studios and producers in getting a production off the ground as distribution deals, bank loans, and equity investments.
OF COURSE, HOLLYWOOD DIDN’T have to dig too deep for the loopholes. Germany, for example, doesn’t even require the films to use native actors or shoot scenes within its borders. Britain requires that 70 percent of production has to take place within its borders, but producers can deftly skirt this and other rules if production is in countries with so-called co-production treaties with UK, such as Romania — where production costs are cheaper — or in Canada, the motion picture industry’s foreign locale of choice.
Paramount Pictures became the first to exploit these tax shelters during the late 1990s when it raised $130 million through a German film fund to finance a slate of films including Mission: Impossible 2. The other studios soon followed with a series of German and British funded flicks, including Travolta’s Scientology-inspired dud, Battlefield Earth, The Fast and the Furious, and Lara Croft Tomb Raider: The Cradle of Life.
For Hollywood, it’s been like dollars from heaven. As for Europe’s filmmakers and taxpayers? A box-office bomb. While some European-oriented films, such as the period piece Girl with a Pearl Earring, have done decent business, American films still dominate European theatres. Last year American films commanded 90 percent of Britain’s box office gross, according to Variety.
The failure of European films to catch fire, along with mounting budget deficits, have now forced some Europeans to reconsider their efforts. German tax officials essentially shut down its film-financing industry in 2002 by announcing it would apply new restrictions; it has since turned the spigot back on with few changes. British officials got even tougher in February when the UK outlawed one form of film funds — which sent the producers of the Johnny Depp film The Libertine scrambling for funds — then took a further step against Walt Disney Co. and the other major studios last month by banning another tax shelter used to defray marketing costs.
Loopholes can only be tightened so much, however. As long as Europeans are determined to subsidize alternatives to American movies, Hollywood will find a way to get at that money and continue to play them for saps.