Inheritance tax reform: Bundesrat blocks bill
The inheritance tax reforms have still yet to be finalized. With the Bundesrat, the upper house of the German parliament, having blocked the draft legislation on July 8, no further decision is expected to be taken before the autumn.
GRP Rainer Lawyers and Tax Advisors in Cologne, Berlin, Bonn, Düsseldorf, Frankfurt, Hamburg, Munich, Stuttgart and London conclude: The Bundesverfassungsgericht, Germany’s Federal Constitutional Court, had ordered that inheritance tax be reformed by the end of June after ruling that it was in part unconstitutional and gave overly preferential treatment to company heirs. However, nothing has come of this. While the Bundestag, the lower house of the German parliament, did give the green light to the bill in question, the upper house opted on July 8 to put the brakes on the reforms for now and refer them to the Vermittlungsausschuss (Mediation Committee) for the Bundestag and Bundesrat. Consequently, the inheritance tax reforms are now likely to be put off until the autumn. The representatives of Germany’s federal states deemed the lenient treatment of company heirs as provided for in the draft legislation to be too generous and still in part unconstitutional.
A lot of family-run businesses in Germany are going to be faced with business succession over the next few years. With the ongoing lack of clarity, they remain in the dark concerning how company heirs will be taxed in the near future. The bill stipulated that company heirs could be exempted from inheritance tax if they retained the firm as well as jobs for at least seven years. However, the barriers to benefiting from this tax exemption were set to be raised significantly.
For instance, it would only be small businesses with no more than five employees that will be able to receive a broad exemption from inheritance tax without having to demonstrate that jobs have been maintained. Companies with up to 15 workers would be exempt from inheritance tax if they can show that jobs have been retained with reference to the wage bill and if the business assets do not exceed 26 million euros in a given incidence of succession. In cases involving larger amounts of assets, there was to be the opportunity to employ a needs test or an abatement model. For inheritances valued at 90 million euros or more, no plans had been made for privileged treatment in relation to inheritance tax.
Now that the Bundesrat has called on the Mediation Committee, company heirs should anticipate that the reforms will be less favourable to them. In order to find the optimal solution in the context of passing on a business, company heirs can turn to lawyers and tax advisors who are experienced in the fields of both succession law and tax law.
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