Many people inherit nothing, some an entire company

Could Germany be about to tax its family businesses much more? As the deadline fast approaches for policy makers to bring in tax changes recommended by the country’s supreme court, local family businesses are bracing themselves for a tougher tax regime in the future.

A few years ago, the Federal Constitutional Court in Germany made a ruling on inheritance tax that says the government must revise rules that allow families to transfer companies from one generation to the next without paying estate tax. The deadline for policy makers to make changes in relation to the ruling is the end of June. And most commentators reckon the government will bring in some tax changes, even if they are a watered down version of what the federal court has ruled.

The issue of inheriting a business was discussed at a recent forum on family businesses at the Witten/Herdecke University in Germany. Journalist Julia Friedrichs, who spoke at the conference and is the author of a recent book on the social implications of inheritance, reckons that the huge amount inherited every year is undermining social mobility and democracy in Germany. It is estimated that inherited wealth in Germany is worth around €250 billion every year, and much of this is tied up in family businesses. A more detailed analysis of the arguments (in German) are available in a recent Handelsblatt article.

Given that most of the public in Germany aren’t owners of family businesses, most agree with Friedrichs and favour a tougher approach to taxing inheritance. Nevertheless, the family business community, represented by pressure groups like The Foundation for Family Business (Die Stiftung für Familienunternehmen) have presented strong arguments for not bringing in new taxes for family businesses. These typically involve the consequences of such taxes on businesses, employment and investment.