Uwe Boll and the German Tax Code

Waaaay down with Jack Thompson and StarForce copy protection, German filmmaker Uwe Boll occupies the lowest circle of the gaming community’s pantheon of demons. Though many producer-directors across the decades have made unwatchable films, the work of Dr. Boll (he has a 1995 doctorate in literature from the University of Cologne) has inspired in many gamers a singular contempt.

There are two main reasons. First, Boll strikes close to home; he has relentlessly chosen to adapt popular computer and video games:

House of the Dead (2003; Rotten Tomatoes score 4 percent, Metacritic 15 percent)

Alone in the Dark (2005; Rotten Tomatoes 1 percent, Metacritic 9 percent)

BloodRayne (2006; Rotten Tomatoes 5 percent, Metacritic 18 percent)

” and forthcoming films based on Dungeon Siege (as In the Name of the King: A Dungeon Siege Tale), Postal and Far Cry.

Second, perhaps more important, Boll is unrepentant. He cannily exploits, not to say “revels in,” reviewers’ aggrieved reactions. In September 2006, in a highly publicized stunt christened “Raging Boll,” the director challenged four film critics to boxing matches in Vancouver. Having chosen his opponents for their lack of training, Boll (an experienced fighter) handily defeated them all. He plans to include footage from the bouts on the Postal DVD.

Like that of his companion devils, Boll’s work provokes heated condemnation in gaming forums, as well as on film hobbyist sites such as BollBashers. Noting his dismal and declining box-office grosses – BloodRayne grossed less than $3.6 million worldwide – bewildered viewers often ask, “Why do people keep funding his movies?”

Thus – uniquely in the history of film – consideration of Boll leads quickly and naturally to a discussion of the German tax code.


In 2005-06, Edward Jay Epstein wrote the “Hollywood Economist” column for Slate magazine. His April 25, 2005 column, “How to Finance a Hollywood Blockbuster,” showed how Paramount financed the second Tomb Raider movie, budgeted at $94 million, for only $7 million out of pocket. The rest came from cable and overseas sales, and most of all from wealthy German investors seeking tax shelters. Epstein has documented movie financing at length in The Big Picture: The New Logic of Money and Power in Hollywood (Random House, 2005).

In Epstein’s articles, and similar pieces in Forbes and the Los Angeles Business Journal, we discern an explanation for Uwe Boll’s career.

Tax shelter accounting can be tough reading. To make it worth your while, I’m giving you 100 million euros. The catch is, you must become a native German investor.

Having just made 100 million euros, you have only moments to celebrate before your German tax accountant tells you the bad news: You’re in a 45-percent tax bracket, so you must pay the government 45 million euros. Ach! That leaves you only 55 million. Can nothing be done?

Now I – a high-flying Hollywood movie producer, well tanned from California’s summer sun – visit you. For 90 million euros, you can have the copyright to a film I want to make. To encourage native cultural industries, your country’s German Tax Fund makes film production costs immediately tax-deductible. You’ll write off the 90 million as an instant loss and pay taxes only on the 10 million euros left.

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Nein, your accountant tells you, that deduction only applies to films made by German companies. But fear not! I, the producer, advise you to set up a shell corporation in Munich that “owns” my film, wink-wink nudge-nudge. The shell will lease back to my studio all rights for 15 years, in a “production service agreement” and a “distribution service agreement.” After the lease expires, I’ll buy back the film, cheap. With only 10 million left after you take the loss, you pay tax of only 4.5 million euros, leaving you 5.5 million.

Ach du lieber! You’ve lost nearly 95 million, right? No, we’re not done yet. Follow me closely here: Under the German tax code, you can take the full 90-million deduction, then have your Munich shell company charge me (the American producer) 80 million to lease back the rights to my movie. Because you just took a 90-million loss, you don’t have to pay taxes on the 80 million you recouped.

You’re only out 10 million, plus the 4.5 million you paid in taxes. You still have over 85 million left! And after you paid me 90 million, and I paid you 80 million back (most of which I got by pre-selling foreign and cable rights to my film), I’m 10 million up on the deal, and I’m not taxed in Germany. Sweet.

OK, so you’ve invested 90 million in my film and taken a loss. Now, you may ask, what happens if my film makes money? Under our contract, I pay you the profit between seven and 20 years from now. You’ll pay taxes on the profit then. All seems well.

But wait! Your accountant has just noticed that, effective January 2006, the German government tightened the German Tax Fund to apply solely to native German filmmakers and production companies. You and I stare in dismay. Oh no! What shall we do?

If only we knew a native German film director with his own German production company

Of course, this example oversimplifies a lot. These complicated deals can involve nonrecourse loans (the investor borrows money to put into the shelter, then writes off the loan fees); equity in the film; distinctions between “tangible” and “nontangible” assets; and lots of middlemen – usually German banks and leasing companies. (The middlemen’s hefty fees are also deductible.) And though German tax shelters funded major hits like The Lord of the Rings and Mission: Impossible 2, Hollywood usually reserves this method for its second-string films, the ones with low profit expectations. As Movie City News editor David Poland pointed out, if a studio expects big profits, it wants to keep the film for itself.

The point is, this shelter is entirely legal, as long as a German production company makes the film. Because film investment is a capital transaction, investors could normally deduct only depreciation; this arrangement gives an immediate 100 percent write-off in order to pump funds into the film industry. In 2004, such targeted relief schemes sheltered $750 million that investors would otherwise have paid as taxes. The film funding arrangement is just one of many kinds of “cross-border leasing” between Germany and America, documented in February 2004 by the PBS investigative series Frontline. Frontline offers a tax shelter FAQ.

Germany has, or had until 2006, the most generous shelters for filmmakers. Many other Western countries have similar filmmaking tax incentive programs (.PDF), extolled by funding consultants such as Peacefulfish.


Blogger Stuart Wood, among many others, speculates Boll’s films are intended to lose money. Were this theory true, it could help explain egregious expenses such as the accidental (?) shipment of 5,500 excess prints of BloodRayne. From a studio’s perspective, might “Hollywood accounting” make it desirable to push a given film from break-even to tax write-off? Not so, Epstein tells The Escapist. “No, it is never advantageous to lose money, though a tax shelter may time-shift tax losses to a later year.” Given Boll’s career to date, and his likely performance ahead, that is weak consolation.

Still, we may at least take heart that, even in the extremely modest German film industry, it’s possible to build a successful career in independent film. John Boorman, who directed Deliverance (not to be confused with Boll’s forthcoming BloodRayne II: Deliverance), wrote in the British newspaper The Guardian (September 6, 2003) about the travails of the modern indie filmmaker in “the arthouse ghetto of low budgets and deferred fees”:

“The independent film has to squeeze into margins and corners not occupied by the bullying blockbusters. The finance is cobbled together from co-productions, tax shelters, territorial pre-sales and, if you are lucky, as I was with my film Truth [released in 2004 as Country of My Skull], money from the [lottery-supported United Kingdom] Film Council. (I won £2m on the lottery without buying a ticket.)

“It took 18 lawyers to reconcile the contracts of all the participants. During those long weeks, as I waited in South Africa with my cast and crew, the picture teetered on the verge of collapse. A feature of independent films is that most of them fall apart, often days before they are due to start shooting, and, even sadder, sometimes a week or two after they have begun.”

We don’t like to think about it, but Uwe Boll represents a canonical indie success. Through shrewdness and persistence, Dr. Boll has successfully gamed the system and earned millions doing exactly what he wants. Tax shelter schemes for filmmakers have reduced barriers to entry and helped level the playing field for everybody – which means, unfortunately, everybody.

On the bright side, this proves a positive lesson: If he can do it, you can too. Anybody can.

Allen Varney designed the PARANOIA paper-and-dice roleplaying game (2004 edition) and has contributed to computer games from Sony Online, Origin, Interplay and Looking Glass.

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