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Berlin to reform inheritance tax law

June 20, 2016

Germany's ruling coalition has agreed to reform the nation's inheritance tax law in favor of small to medium-sized businesses after a high court decision in 2014 mandated a whittling down of generous tax privileges.

Tax declaration form
Image: Fotolia/m.schuckart

Germany's ministers of finance and economics said Monday they had nailed down the details of amendments to the nation's controversial inheritance tax legislation.

Finance Minister Wolfgang Schäuble, a member of Chancellor Angela Merkel's Christian Democrats (CDU), and Sigmar Gabriel, Germany's Social Democratic (SPD) economics minister, spoke of a a viable compromise after months of fierce fighting over the changes to the law.

They were joined by Horst Seehofer, the head of the CDU's Bavarian sister party, the Christian Social Union. The new laws will not come into effect until Germany's upper and lower houses of parliament vote on them.

Back in 2014, Germany's Constitutional Court ruled that the country's generous tax privileges were concentrating wealth in the hands of a few wealthy industrialists, and gave Berlin until mid-2016 to amend the law.

People & Politics - Inheritance Tax - Why the Politicians Are Fighting Over It - 30.10.2008

In favor of small to mid-sized businesses

The law effectively exempted corporate successions from inheritance tax in a bid to protect small and medium-sized companies by preventing them from running short of liquidity in the event of an unexpected tax debt.

However, the judges - and many economists - agreed the legislation in question was also facilitating the emergence of powerful industrial dynasties. Schäuble and Gabriel emphasized on Monday that the new law would focus on protecting jobs after companies changed hands from one generation to another.

Companies with no more than five employees, for instance, will face especially low bureaucratic hurdles in order to guarantee their exemption from inheritance taxes. On the other hand, inheritances worth at least 26 million euros ($29 million) would be subjected to special scrutiny with a view to establishing whether paying inheritance tax would jeopardize a business. No exemption would be granted for inheritances in excess of 90 million euros.

In any case, companies hoping not to pay inheritance tax would have to make substantial job guarantees for a longer period after a succession. The revised legislation still needs parliamentary approval, but Berlin hopes the law will go into effect by July 1.

hg/cjc (Reuters, dpa, AFP)