The Federal Tax Court’s decision of September 27, 2012 (case no. II R 9/11) renewed old doubts about the constitutionality of the current inheritance tax law and called on the Federal Constitutional Court to examine whether the preferential tax treatment given to inherited business assets passes constitutional muster. The Tax Court argued that the preferential treatment of business assets, at least in the form that has been in force since January 1, 2009, is not sufficiently justified by public policy considerations. The Court does not view it as proven that such treatment helps ensure the continuity of businesses or protect jobs. Moreover, it believes that the tax exemptions have been unconstitutionally extended, because there are legal ways for assets that are not required for business operations to fit within the meaning of the clauses in question.
The latter issue was probably addressed by the amendment of inheritance tax rules by the Mutual Assistance Directive Implementation Act [Amtshilferichtlinie-Umsetzungsgesetz], which provides that “Cash GmbH's” are not entitled to preferential treatment for inheritance tax purposes. If cash resources minus debts exceed 20% of total business assets, they are considered harmful nonbusiness assets and can thus make the exemption rules inapplicable.
But this solution throws the baby out with the bathwater. These new rules not only eliminate the preferential treatment of Cash GmbH's, but they also have drastic inheritance tax consequences for medium-sized companies.
