The Belgian Government has moved to reform the country’s highly lucrative but controversial Tax Shelter system.

The move follows recent investigative reports in the Belgian press about “pyramid schemes” being used for film financing.

Industry insiders anticipate that the new version of the Tax Shelter system could be up and running as soon as October this year. However, the changes must be approved by the Council of State, the Belgian Parliament and the European Commission.

The Tax Shelter system, introduced in 2003/04, has made Belgium into a major hub for international co-production. It is calculated to generate at least €200m ($275m) of investment a year into films.

When the system was set up a decade ago, investors faced a small risk. However, intermediaries soon began to offer these investors a guaranteed return. Critics argued that this meant too little of the investment actually reached the producers.

Under the new system proposed, the investors will not take rights. A producer spending a certain amount of money in Belgium will receive a certificate that can then be sold on to investors. This certificate will give the investors an immediate fiscal advantage - but this will not be linked to the exploitation of the film.

Peter Bouckaert, president of the Flanders Film Producers Association, has bemoaned the way the old Tax Shelter system turned into “a market functioning on financial products guaranteeing high returns.”

Once costs and fees were deducted, as little as 20% of the money raised was “available really for production investments”.

“This created a crisis situation in our sector,” said Bouckaert. “The cost of the functioning of the whole system was way too heavy, way too expensive.”

“All of a sudden, the Government realised that if this situation was to go on for another year, it would have devastating effects on the audiovisual industry,” Bouckaert commented of the timing of the reforms.

He added that there is “a sense of urgency” to get the new system in place as soon as possible.

“If we wait until the beginning of 2015, this year will be wasted,” Bouckaert said. “Investors have really lost their confidence in the current system.”

He said that now was the “moment to reform the system and re-push the start button”.

Although some Belgian film financiers fiercely opposed the reforms, leading film group Umedia - which raises $80m annually - has welcomed the changes.

“The whole industry was in agreement that certain things needed to be changed within the Tax Shelter and the way it was applied,” commented company CEO Adrian Politowski. “There were differences on what the changes should pertain to. We very much pushed for having stricter controls on the actual fund raisers.”

Politowski said uMedia worked closely with government on the proposed reforms.

“The most delicate part of the discussion was to make sure that the financial scheme would remain attractive for the investors”, Politowski commented.

“Thanks to the many meetings we had with the Minister and his team, we believe we have an excellent compromise that suits all Belgian producers as well as investors. The new Tax Shelter, will be easier to implement, it will allow more flexibility on projects than today and it will open the tax incentive to an even larger market. Belgium will become stronger than ever on the international scene”.

uMedia is one of the financiers of Olivier Dahan’s Grace Of Monaco, this year’s opening film in Cannes.