German Business Owners Threatened by Tax Ruling

German business owners were warned they might be forced to slash investments and possibly sell holdings if they lose a privilege that has saved them billions in taxes. 

Germany’s constitutional court will decide whether families can continue to transfer companies from one generation to the next without paying estate taxes. 

Since most of the country’s three million small-and medium-sized companies are privately owned, political and business leaders will watch the ruling with dread.  “It is important for us that no jobs . . . will be destroyed as a consequence of this ruling or that the existence of companies will be threatened.” 

Under the current law, corporate assets can be passed tax free as long as the heirs keep the business for at least seven years.  “It is expected that Germany’s highest court will tighten the legal rules.  That would make the handing over of companies significantly more difficult.” 

One business owner, Manfred Fuchs, has passed on more than 95 percent of the family’s assets in the company.  “Without the exemption rule we may be forced to sell company shares and then you can’t rule out a hostile takeover,” he said.  “If something were to happen to my son and the privilege and no longer existed then, we’d face the same problem.  Where should we get the money from?  Our company needs to invest every year.”

See Karin Matussek and Nicholas Brautlecht, Billions in German Family Wealth Threatened by Tax Ruling, Bloomberg, Dec. 16, 2014.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.