Controversial tax reform

The Bundestag approved the new legislation with the votes of the governing conservative CDU/CSU and their center-left Social Democrat junior coalition partners, while the opposition irately voted against it.

The new legislation lowers the maximum capitalization rate for inherited businesses from 14 to 13.75 times annual earning capacity. Exemptions are available for inheritors of up to 90 million euros ($101 million) in assets, but they will need to do more to prove economic need and must pledge to continue to run businesses and maintain jobs for at least seven years.

The reforms have been a long time coming. In 2014 Germany's Constitutional Court ordered the legislature to reformulate inheritance laws because they were being interpreted, contrary to their original intent, to benefit some inheritors unfairly. Three of the judges saw a conflict between the laws as they stood and the constitutional principle that all legislation had to be written in the interests of social equality.

A deadline was set for the summer of 2016, but the legislation has bounced between the Bundestag and Germany's second chamber of parliament, the Bundesrat.

German inheritance tax laws are mind-bogglingly complicated. Advocates of the new code say that it closes some of the most glaring loopholes while not additionally burdening a particular important element of German society and the German economy: small- and medium-sized family-run businesses.

A German particularity

It's hardly an exaggeration to say that Germany has a particularly familial economy. There are 3 million family businesses in Germany. That's 95.3 percent of all companies, compared with around 50 percent, for instance, in the United States. Family-run enterprise generates 41 percent of total German business revenues and creates 61 percent of German jobs.

The category includes corporate giants such as Volkswagen, BMW, Aldi and Bosch, but more than three-quarters of all family-run businesses have an annual turnover of less than 1 million euros, and more than 90 percent have fewer than 20 employees.

The top 500 family-run companies tend to pay higher tax rates than non-family-run, listed companies, to which German inheritance taxes do not apply. Family-run companies also tend to have more capital and less debt so that a plausible case can be made for them as guarantors of economic stability.

On the other hand, one estimate in 2015 forecast that 3.1 trillion euros will be inherited in Germany in the next 10 years, 2.1 trillion by younger generations of families. One-third of that sum (700 billion) will stay within the wealthiest 2 percent of the population, which critics say is unjust.

Heated debate

The conflicts between social equity and the needs of family-run businesses were on ample display at a special parliamentary debate requested by the Left Party on Thursday. The potentially dull topic of tax rates generated plenty of heat.

"The reform is in the interest not of small family businesses but rather of gigantic corporations and financial dynasties," fumed Left Party deputy Dietmar Bartsch. "There's not one case of a business going under because of the inheritance tax. The gap between rich and poor is growing wider, and the inheritance tax would be an appropriate means for combating that."

The conservatives argued that the compromise deal worked out with the SPD would maintain one of the strengths of the German economy.

"The middle classes structure our country, but we also need bigger family-run enterprises," said CDU-CSU deputy Anja Karliczek. "The healthy mixture is what makes us what we are. A flourishing business pays taxes and creates jobs. That's what we're trying to preserve today."

SPD speakers asserted that the new legislation had closed the loopholes favoring the very rich - an argument the Greens refused to accept.

"What you've done is to reduce the taxable worth of businesses by 23 percent - that's not in the spirit of the constitution," said Greens parliamentary leader Anja Hajduk.

Tepid reaction from business groups

While opposition politicians felt the legislation was unfair, small business advocacy groups were lukewarm about what they saw as excessive red tape in the new tax codes.

"In the long-term, the traditional principles of an inheritance tax with high tax rates and regulated exemptions isn't the right way because they quickly lead to economically unjust and inefficient tax burdens," Martin Sorg of the Institute for Family Enterprises told DW.

The Association of Tax Payers also complained that the complexity of the rules was an obstacle to be overcome in transferring businesses from one generation to the next.

"The principle authors of the deal haven't earned much applause," Association President Reiner Holznagel said. "We can expect that the financial authorities will again have to issue a host of instructions about how the law is to be applied."

On October 14, the Bundesrat will vote on the legislation, and it's expected to be approved. But as many commentators have pointed out, that doesn't mean the issue of how much tax inheritors of various sized companies pay is definitively resolved.

"What do you want to bet that tax advisors are already searching for loopholes?" wrote the weekly "Die Zeit" news magazine. "In a couple of years we'll see what they've found - and whether the new law is also potentially unconstitutional."