German media funds look set to be put out of business thisweek because of a proposed tightening up of tax fund legislation by FinanceMinister Hans Eichel.

Eichel's plans to curtail tax breaks for media investmentfunds will be hugely painful for US producers. They will also be "acomplete catastrophe for the German film industry," one fund manager told

According to fund analysts,German media funds raised a staggering Euros 13bn between 1997 and 2004 witharound 80% of this being invested Stateside.

In a move to stop filmfunds operating as loss allocation vehicles, Eichel's ministry has drafted abill which will only allow media funds to operate under the old rules if theyhad been launched to investors before March 18. It had been assumed by fundmanagers that there would be a transition period until September 30, but themen from ministry sounded the death knell for media funds by additionallyspecifying that investors would have to board a fund before May 5 to be able toinvest according to the old regime.

"It's completely ridiculous and unconstitutional andagainst everything we had been promised," one fund manager told

With the German economy performing weakly, the media fundshave come under criticism in Germany for investing too much money in USproductions and not supporting the local industry enough. A group of fundmanagers, lobbyists and film producers had met earlier this year withChancellor Gerhard Schroeder to explore the possibility of an introducing a saleand leaseback model or "German spend" option as a way of channellingmore of the private equity raised into German (or least European-based) filmsrather than into US-based productions.

"Several local producers are really angry because theywere going to work with funds on films going into production this summer, butthese projects now have to be put on hold," added the fund manager.

Munich-based producer Arno Ortmair, whose MediaFonds 1 hadbeen one of the financiers of Raoul Ruiz's Klimt earlier this year, commented: "With the media funds the Germanfilm industry was slowly becoming more competitive and could have its say on aninternational level thanks to the know-how and money. Eichel's action will sendus back into provinciality.

Gerhard Schroeder's cabinet is set to discuss the draft billon Wednesday with a Bundestag reading later this month. The fund managers willbe hoping for the Bundesrat upper house to refer the bill to a mediationcommittee.