Newspaper article International New York Times

Businesses in Germany Face New Rule on Estate Tax ; Court Strikes Down Law That Gave Break to Heirs in Order to Preserve Jobs

Newspaper article International New York Times

Businesses in Germany Face New Rule on Estate Tax ; Court Strikes Down Law That Gave Break to Heirs in Order to Preserve Jobs

Article excerpt

The decision spurred an outcry from business groups who said they feared family-owned businesses would have to be sold to outside investors to pay tax bills.

Germany's highest court on Wednesday struck down a law allowing companies to be passed from generation to generation tax free, provoking an outcry from business groups who said the decision endangered the family-owned firms that are the backbone of the economy.

The Federal Constitutional Court emphasized that it did not see a fundamental problem in giving tax breaks to family companies in order to preserve jobs, and it gave German lawmakers until the middle of 2016 to fix the aspects of inheritance law it said provided unfair privileges to family heirs.

Still, the decision struck at the core of Germany's image of itself as a nation of industrious, family-owned companies passed from one generation to the next, in some cases over centuries.

Coverage of the decision dominated German media on Wednesday and prompted an immediate reaction from industry groups.

Ulrich Grillo, president of the Federation of German Industries, said lawmakers should take steps to ensure that companies could remain within families. "Anything else would endanger investment and jobs," Mr. Grillo said in a statement.

Germany has 2.7 million family-owned or controlled companies, according to the Family Companies Foundation. While most family companies are small, more than 170 have revenue of at least 1 billion euros, or $1.25 billion.

Often, much of the value of German companies consists of machinery or factory buildings that are not easily converted to cash to pay inheritance tax. Industry groups argued that people who inherited companies would be forced to sell out to private equity firms or other outside investors in order to pay taxes, and that the new owners might be more focused on short-term profit and less determined to preserve jobs in Germany.

The tax break, however, has also faced criticism for being too broad and allowing wealthy people to avoid taxes.

By some estimates, the tax break allowed heirs to avoided EUR 40 billion in taxes during 2012. …

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