The only thing that is clear is that inheritance tax needs to be reformed. How it ought to be reformed remains disputed. Even a meeting of the federal and state finance ministers did not deliver a breakthrough.
GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London - www.grprainer.com/en conclude: The Bundesverfassungsgericht (German Federal Constitutional Court) ruled at the end of last year that inheritance tax needs to be reformed because company heirs receive overly favourable treatment compared with private heirs. Inheritance tax must be revised by mid-2016.
Despite the Federal Finance Minister Wolfgang Schäuble announcing a new reform and introducing its key points, the discussion has not ended. Criticism has come from the business community but also from political circles. Schäuble’s plans involve, inter alia, a needs test for family businesses if they wish to be spared having to pay inheritance tax. According to these, this test will apply to succession cases from a value of 20 million euros and above. Moreover, it will be possible for up to half of the private assets of the heirs to figure in here. This threshold is one of the main points of contention. While some deem this threshold to be too low, critics from business and politics consider it to be too high, saying that it would jeopardise the existence of family businesses. On the other hand, it is important for the government to come to an arrangement that is constitutional. It was not even possible for a meeting of the federal and state finance ministers on May 7 to come to an agreement.
The legislature still has about a year to implement the reform. It is evident that company heirs will be faced with cuts, yet it remains unclear how drastic these will be given the Bundesverfassungsgericht’s clarification that it is permissible to treat company heirs favourably. A requirement for this to happen is the retention of jobs over several years. Whether and to what extent this will also apply to larger businesses is, however, still not clear.
Firms that are going to have to make arrangements for businesses succession in the foreseeable future ought to start thinking about this in good time. It is still possible for company heirs to benefit from extensive tax privileges. Even though the reform of inheritance tax has already got off the ground, the transfer of a company should be arranged in a way that is optimal from a tax perspective. Lawyers and tax advisors who are experienced in the field of tax law can support businesses in the process.
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