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German Court Challenges IHT Law

by Ulrika Lomas, Tax-News.com, Brussels

15 October 2012


Germany’s Federal Fiscal Court (BFH) in Munich has recently ruled that certain provisions contained in the country’s inheritance tax law pertaining to the taxation of business assets are unconstitutional.

According to the BFH, the fact that bequests of business assets are currently either substantially or completely exempt from taxation under the 2009 law violates the principle of equality and is unjustifiable.

The Court criticized in particular the opinion of the then legislature, namely the argument that the imposition of inheritance tax would put at risk the continued existence of the business itself.

The BFH also questioned the validity of the intent of the tax breaks to preserve jobs. In accordance with Germany’s 2009 inheritance tax law, heirs of assets from companies with more than twenty employees are exempt from inheritance tax provided that the business remains operational for at least ten years and that jobs are maintained.

Alluding to further loopholes in the law, the Court stressed that the 2009 legislation allows company owners to include unlimited private wealth as business assets, thereby benefiting from significant tax breaks at the moment of inheritance.

The Munich Court has referred the matter to Germany’s highest court, the Federal Constitutional Court, for its examination. The government is confident that the law will be upheld.

TAGS: court | inheritance tax | tax | investment | business | law | employees | legislation | Germany | tax breaks

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