The reforms to inheritance tax need to be in place by June 30, 2016, yet company heirs in particular still do not know what burdens they will be faced with going forward.
GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London conclude: The legislature has until June 30 to introduce the reforms to inheritance tax. This was necessitated by a ruling of the Bundesverfassungsgericht, Germany’s Federal Constitutional Court, which criticized the overly favourable treatment accorded to company heirs. In future, company heirs will have to adjust to increased tax burdens for the purposes of business succession. That said, it is still unclear what form these will take.
As reported by Handelsblatt on April 1, if the reforms to inheritance tax are not in place by the deadline of June 30, 2016 then the existing laws shall continue to apply. However, for businesses and heirs this is no cause for celebration, as lawsuits could be filed after this cut-off date and the favourable treatment hitherto enjoyed by company heirs might then no longer apply.
To date, the German Federal Government has not been able to agree on the final reforms to inheritance tax. The basis of the discussions is a draft bill put forward by Germany’s Finance Minister, Wolfgang Schäuble, according to which a needs test is to be introduced for business succession in cases involving a value of 26 million euros or more. Preferential tax treatment would then only be possible if the company would be put at substantial risk as a result of the inheritance tax. Critics want the valuation rules to change so that the company value drops by 30 per cent. If control of the company’s assets is already restricted by the articles of association in the case of family-run businesses, the plans provide for a needs test for inheritances valued at 52 million euros or more. However, private assets will continue to be factored into the needs test. Alternatively, company heirs can also apply to be granted tax relief. Furthermore, in the event of death, any administrative assets liable for taxation that are reinvested within a year are to receive favourable treatment.
Despite the imminent expiry of the deadline, there is still no finished inheritance tax reform in sight. The only certainty is that company heirs will have to adapt to higher tax burdens in the context of business succession. In order to find the optimal solution from a tax perspective to the transfer of a business, company heirs can turn to lawyers and tax advisors who are experienced in the field of tax law.
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