Munich, 10.10.2012

Inheritance Tax Goes Back to Karlsruhe: Legal Uncertainty for Family Businesses

"After the Federal Fiscal Court's draft, the inheritance tax act has to be revised another time by Germany's Federal Constitutional Court. This entails another prolonged period of legal uncertainty for family businesses", explains Prof. Dr. Dr. h.c. Brun-Hagen Hennerkes today's reference order of the Federal Fiscal Court (Bundesfinanzhof). "Apparently, this kind of a death tax is not only a prime example of excessive red tape but also requires great efforts to be shaped to fit Germany's Basic Law."

"The inheritance tax particularly burdens large family businesses", Prof. Hennerkes continues. "The unpredictable nature of death triggers financial requirements that simply cannot be foreseen. Moreover, these obligations have to be paid from previously taxed income. This obstructs investments for years to come and interferes with innovation and any steps to increase productivity. The equity ratio of family businesses, at the same time a guarantor for sustainable alignment of the company, is affected. Thus, companies are more likely to be taken over by investment companies.

In addition to that, the inheritance tax were to affect only family businesses and not concerns in free float, despite the fact that family businesses accounted for more than 90% of jobs in Germany, Prof. Hennerkes said. "The top 500 of this company type increased their workforce by 9% between 2006 and 2010 while DAX-listed companies (not including those owned by families) lowered theirs by 7%."

With the 2009 inheritance tax reform, effective exemptions for businesses were introduced. They are now in the process of getting scrapped. After a Bundesrat initiative, lawmakers are working towards the exclusion of those businesses with high cash flow from tax exemptions.

"Politics has once more shown how difficult it is to treat family businesses fair in the event of succession and close any remaining tax loopholes at the same time", Prof. Hennerkes comments. "The currently discussed solution is overshooting the mark with any business documenting more than 10% liquidity among its administrative assets being excluded from tax exemption. Why do companies hold cash reserves? They do it to hedge against economic downturns, for acquisitions and investments or to reinforce their equity. With its radical regulation, the Federal government is running the risk of hitting those companies that have strengthened their liquid assets in recent years and have acted as stabilizers during the financial crisis."

» Press release for download (PDF, german 225 KB)

For more information:

Hartmut Kistenfeger
Head of Press and Public Relation

Foundation for Family Business
Prinzregentenstraße 50
D-80538 Munich, Germany

Tel.: +49 (0) 89 / 12 76 400 06
Fax: +49 (0) 89 / 12 76 400 09
Mobil: +49 (0) 163 / 426 70 21 


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