Germany's highest court Wednesday ruled against inheritance tax breaks for many family-run businesses, raising fears in a sector known as the backbone of Europe's top economy. The Constitutional Court said certain exemptions for companies that pass from one generation to the next are unconstitutional and that the system must be modified by late June 2016.
German Industry Federation chief Ulrich Grillo reacted by demanding that "politicians must now keep their promise to continue to make generational change at family businesses possible". In 2009 Berlin introduced inheritance tax exemptions to protect family businesses with fewer than 20 staff from steep charges, under certain conditions such as the heir guaranteeing to keep on the staff and run the company for at least another five years.
However, critics have charged this has let some hugely successful companies off the tax hook. The Ifo think tank estimates that in 2012 assets worth 17 billion euros ($21 billion) were passed from one generation to another without being taxed. The country's highest financial court had voiced doubts about the legality of the tax system and lodged a case at the Karlsruhe-based Constitutional Court. After Wednesday's ruling, several business organisations called for the outright removal of inheritance tax once and for all.
An Ifo study commissioned by the Foundation of Family-Run Businesses found that two thirds of family-run companies believed they would have to cut their investment budget if inheritance tax increases. Just over half said they would be forced to make job cuts, it indicated.