Following the German Constitutional Court’s (Bundesverfassungsgericht) ruling at the end of 2014 that inheritance tax must be partially reformed, company heirs may be faced with large cuts.
GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London - www.grprainer.com/en conclude: On December 17, 2014, the Bundesverfassungsgericht held that the privileged status of company heirs vis-à-vis private heirs is in part unconstitutional. The German Government has until mid-2016 to make improvements. Germany’s Finance Minister, Wolfgang Schäuble, has now presented the first set of possible key points for the reform of inheritance tax.
A central aspect of this which has been met with a lot of criticism is the use of up to half of a company heir’s private assets to settle the tax liability where an inheritance or gift is valued at 20 million euros or more. If the businesses concerned nevertheless wish to profit from the tax concessions, they have to demonstrate on the basis of a needs test that the continuity of the business would be put at risk by inheritance tax. Critics consider the threshold of 20 million euros to be far too low and the burden placed on family businesses far too high.
Company heirs have to date been able to benefit from massive tax privileges within the context of company succession. As long as the payroll remained stable over seven years and jobs were thus maintained, between 85 and 100 per cent of inheritance tax could be avoided. In future, this payroll condition shall only apply to businesses valued at more than one million euros.
These key points are not yet a done deal; the reform also has to be approved by the Bundesrat, and various federal states have already heavily criticised the plans.
It is nonetheless certain that the privileges enjoyed by company heirs will be restricted. Businesses for which company succession has to be arranged in the near future should therefore take prompt action in order to take advantage of the tax concessions, as retroactive effect of the reform back to December 17, 2014 is presumably not envisaged. In order to structure the transfer of the company in a way that is optimal from a tax perspective and avoid jeopardising the existence of the business, businessmen can turn to lawyers and tax advisors who are experienced in the field of tax law and will provide expert advice from the outset regarding the transfer of the business.