Pierre Drouot is a worried and angry man. The director of the Flanders Audiovisual Fund fears that the work of 20 years' hard lobbying for a Belgian tax shelter to support film finance may soon be killed off. And he believes he has identified the culprits responsible.

"The analysis is very simple. The system that has been chosen in Belgium is a system that has been deregulated. You have middlemen who want not only to be paid for their services but to make a profit. That is their business plan. What do they have to do' To promise profits to investors. The more profit they promise investors, the more chance to attract them," Drouot insists.

He suspects that a tax shelter encourages the worst kind of speculation and that film-makers' interests are being forgotten. "It is profit above profit above profit ... the net size that can go into the movie you see on screen is downsized more and more and more. So the system is going to die. For me, the only question is when. You see it everywhere. Wherever you've had an unregulated tax shelter, it has died."

Fear factor

What raised alarm bells was a statement from the finance minister, Didier Reynders, about the dangers of the system being abused. The Flanders Producers Association introduced a voluntary 'code of conduct' to reassure the politicians they were not abusing a system that offers a guaranteed 12% return on investment.

Drouot's fears are shared by a number of producers but there is little sign from any official source to back up their concerns. Veronique Tai, a member of Belgium's Ruling Commission (an arm of the tax authority that deals with advance decisions on the tax consequences of projects) says the finance minister's reservations are already being addressed.

"It's too pessimistic," she says. "Restrictions have been put in place to limit the guarantees that can be offered to investors. Now people know what they can do and what they cannot do."

And Adrian Politowski, head of production at Belgian finance company Motion Investment Group, which has built a strong business on the back of the tax shelter, believes that not only will the shelter continue but it will be expanded to allow a higher limit on individual investment.

But the fear of producers shows the extent to which the recent chequered history of finance based on tax loopholes has a hold on the European business. The collapse of major film finance schemes in both Germany and the UK happened amid well-founded fears the exploitation of tax loopholes had made a mockery of the original vision. And what has remained is the impression that a coterie of 'middlemen' are responsible for undermining film finance.

It is not an irrational fear. All finance ministers worry that tax breaks, however well intended, are ripe for abuse. And for some accountants, the search for loopholes for their clients is pursued with the zeal of someone bound by a Hippocratic oath.

As Damian Wild, editor-in-chief of finance magazine Accountancy Age, puts it: "Tax evasion is what criminals do, but tax avoidance is what accountants are for."

After the UK and German debacles, every government is watchful of tax leakage and there is a general push across Europe at the moment to close off tax avoidance - because of pressure on public sector budgets from below and the need to compete in a tough global market.

In Italy, a clampdown on tax evasion is expected to add $10.2bn to public funds, according to the Financial Times, helping to cut the current budget deficit from 4.8% of GDP to 2.8%.The Greek government also last week set up a permanent committee on tax evasion. Belgium's next-door neighbour, the Netherlands, this week revealed details of its plan to replace a scheme that again was felt to have been straying from support for film.

The Dutch have now come up with a 'matching fund' to allow producers with two-thirds of their budget in place to apply for the final third of their film's financing. Dutch Film Fund director Toine Berbers made clear that the reforms reflect a change in attitude from government.

"Reason number one (for the reform of the tax system) was that the minister of finance (Gerrit Zalm) never liked it. Reason number two was that lots of middlemen got involved - there were too many costs involved with fiscal and judicial wizards. And reason number three was that the producers weren't earning money out of their movies. The money went to the investors."

Modern mantra

Cutting out the middlemen and ensuring that all the money goes to producers has become the mantra of modern state incentives.

But exactly what constitutes a 'middleman' is a rather more complex discussion than the 'give it to producers' argument would suggest.

Attracting private investment remains a vital part of the film financing equation and even generous production incentives from government make up only part of the equation.

What is clear is that there has been a change in the language and emphasis in the film finance world, as the UK demonstrates.

Having waved goodbye to the easy money schemes of the sale and leaseback era, there was a flurry of speculation about the next big finance wave.

Back in 2004, hopes for another boom rested with what became known as Gaap partnerships. The term refers to the generally accepted accounting principles used by most businesses, and in broad terms offered investors the opportunity to defer tax payments on a loan-supported investment by writing down expected losses on a film production.

The Inland Revenue was wise to the potential and new legislation restricted the prospect of another easy-money floodgate opening up.

The prospects for Gaap funding remain unproven in any business and no doubt further action will be taken if there are any signs of another runaway loophole.

Sustainable development

Increasingly the language of those companies associated with so-called Gaap schemes is turning away from tax and towards finding ways to make film an attractive investment - and, more importantly, a sustainable investment.

For Martin Churchill, of Tax Efficient Review, it is an emphasis that is hardly surprising, given the attentions of the tax authorities. But for investors, the tax deal remains the one element that is bankable, he claims. "You just don't know the economics of film, which are opaque and difficult to fathom. There's just no data."

Tax credits and government incentives look like an investment but the film business in itself looks a lot less attractive outside the US.

"In my view, film is a business that does not stand on its own two feet," says Churchill.

It is not an optimistic view but one that reflects a wider concern about the relationship between budgets and box office - and indeed the lack of transparency on costs and eventual revenues.

There are already court cases involving disgruntled investors who feel they were sold a pup and Churchill believes more are to come.

Businesses now working in UK film finance, however, insist their talk of sustainable investment models is not just for the benefit of the Inland Revenue.

The film industry is praying they are right - the industry cannot sustain itself by the government's tax break alone, with its complex cultural tests.

A real commercial venture

Keith Evans, founder of Baker Street Media Finance, was one of the pioneers of the scheme, using the Gaap term. But he insists he is more interested in providing a film slate that looks like a good investment. "We are not a tax shelter but a real commercial venture. As long as you are making films that make money, everyone is happy," he says.

The tax authorities, he says, are on "permanent red alert" about film schemes, which means that the tax element of the offer is understood by investors to be just one part of a much bigger equation.

Gaap is a term Patrick McKenna, chairman of Ingenious Media, loathes with a passion - even though it has often been used in conjunction with his business.

The Ingenious model is based on the idea of it being what he calls a "virtual studio". Investment is spread not just through production, but around half is offset against other areas of film in which the company now has a strong hand - rights, back catalogues etc.

McKenna says the tax break is an attractive add-on to cushion the initial investment but it plays little or no part in the business plan. "Ultimately, the film has to be successful."

McKenna shares Churchill's points about sustainability, realistic budgets and open investment plans. "We have had our fair share of critics because we drive a hard bargain and will not back any film on a blank-sheet basis."

Investors want to know that there is a budget that works, efficient distribution and a realistic assessment of prospects in cinemas, on DVD and other platforms.

McKenna says investors are attracted by its film offering because of confidence in the way his business understands the market; the ability to spread risk across other areas of the film industry; and lastly, the tax incentive.

"There's real risk but we have to have sustainable investment," he says.

What unites the worried Belgians, the investment tax expert and today's investment companies is the notion that what matters is sustainability. The only thing absolutely clear at present is that unsustainable tax systems are at best a temporary boom that will be followed inevitably by bust.