Decision of the Federal Constitutional Court? Political willingness to reform?
Most recently, comprehensive legislative reforms to the Inheritance and Gift Tax Act were introduced in 2016 after the Federal Constitutional Court declared the exemption rules for business assets applicable at the time to be unconstitutional. Now, the current regulations on business asset relief pursuant to Sections 13a et seq. and 28a ErbStG are once again under review. In the context of the pending constitutional complaint, a decision must be made as to whether this places purchasers of private assets at an unreasonable disadvantage in relation to purchasers of business assets. This is because the current provisions of the Inheritance and Gift Tax Act exempt business assets from taxation in whole or in large part under certain conditions. In addition, further tax benefits may be considered: For example, depending on the composition of the acquirer's own private assets, the so-called exemption requirement test pursuant to Section 28a ErbStG provides for the possibility of obtaining a remission of inheritance or gift tax. This situation is particularly criticized regarding large estates.
Predictions about the outcome of the constitutional complaint are like looking into a crystal ball. Even within the “grand coalition,” there are increasing calls that, regardless of the outcome of the constitutional complaint, a “change” in the exemption rules for business assets is “necessary.” Experience shows that this means a tightening or even the complete abolition of the exemption rules for business assets.
Entrepreneurs should act now!
If the Federal Constitutional Court again finds that individual provisions of the Inheritance and Gift Tax Act are unconstitutional and obliges the legislature to amend the current provisions, or if, independently of this, the legislature's willingness to “change” inheritance and gift tax law prevails, the transfer of business assets is likely to be considerably less privileged in the future or cease altogether.
In view of future assets and business succession, entrepreneurs are advised to address this issue immediately and implement succession plans in good time before the relevant reforms come into force. There is still time to carry out a structured business succession that is optimized in terms of inheritance and gift tax. However, it cannot be ruled out that this window of opportunity will close quickly.
We would be happy to assist you in developing a succession plan, evaluating your company, and reviewing the requirements for business asset protection in accordance with Sections 13a, 13b, and 13c of the German Inheritance Tax Act (ErbStG) and Section 28a ErbStG using our valuation tool and subsequent implementation.
Take advantage of this window of opportunity and feel free to contact us!
