Specifically, the changes concern the definition of “harmful” nonbusiness assets, which prevent tax exemption of 85% of the company’s assets if the harmful nonbusiness assets amount to more than 50% of the company’s value. Furthermore, business assets can only be completely tax exempt if the harmful nonbusiness assets account for no more than 10% of the company’s value.
The following rule applies to business assets acquired after June 6, 2013: assets that remain after subtracting the total value of debts and are in the form of currency, business credits, cash receivables or other receivables, are counted as harmful nonbusiness assets if they account for more than 20% of all business assets.
Medium-sized companies also face another disadvantage. The new rule exempts certain companies, such as those whose primary purpose is to finance affiliates.
Financing companies for large corporate groups will clearly benefit from this because their sole purpose is to pool cash for the groups. In contrast, the practice in medium-sized companies is generally for the holding company in which the equity interests are concentrated to assume responsibility for financing while also performing services related to the company’s purpose. The answer to whether these companies may also be exempted from the tighter restrictions is likely to be negative in many cases or lead to legal disputes with the tax authorities.
In order to exclude Cash GmbHs from the list of assets entitled to favorable inheritance tax treatment, the lawmakers were willing to adversely affect medium-sized companies. A more nuanced rule whereby only funds that are nonessential in the particular case are considered harmful nonbusiness assets would have been desirable.