Business Assets Are Tied Up in Productive Use

In the BDI’s view, the existing system is constitutional. While the preferential treatment of business assets results in unequal treatment compared with the acquisition of private assets and therefore requires justification, this unequal treatment is justified by compelling public-interest considerations.

A high company value does not mean that the recipient has a corresponding amount of liquid funds at their disposal. Business assets are generally tied up for the long term in machinery, production facilities, buildings, patents, inventories and future earning capacity. In family-owned businesses, restrictions on distributions, disposals and compensation claims under the articles of association or partnership agreement may further limit the economic availability of these assets.

If the recipient’s personal inheritance tax liability cannot be settled using private assets or sustainably available net cash inflows, the necessary liquidity must generally be raised through additional distributions, external financing, or the sale of assets or shares in the company. This may weaken the company’s liquidity and equity base, adversely affect investment, and jeopardize business succession and established ownership structures. Although the tax is legally imposed on the recipient, its economic effects may therefore also be felt by the company, its employees and the location in which it operates.

Tax Relief Protects Businesses and Jobs

Inheritance tax relief for business assets should therefore not be understood as a personal privilege granted to an heir. Its purpose is to protect productive business entities and the investment, employment and economic functions associated with them. The justification for the preferential treatment is not family ownership as such, but the particular economic function of the transferred assets.
The law currently in force does not provide an unconditional tax exemption. It limits preferential treatment to qualifying business assets and makes it subject, among other things, to minimum holding periods, payroll requirements and subsequent taxation rules where the applicable conditions are not met. Non-qualifying administrative assets generally remain subject to tax. Additional requirements apply to large transfers. The law therefore reflects the principle that the requirements for justifying preferential treatment increase in line with the extent of the benefit granted.

The Existing System Is Constitutional

The legislature may provide for tax relief in order to prevent adverse consequences for the public interest. Preserving businesses, their capacity to invest and the jobs associated with them is a legitimate objective. The current provisions are suitable for limiting tax-related liquidity withdrawals and ensuring the continued operation of businesses. At the same time, the substantive, temporal and employment-related conditions attached to the relief ensure that the preferential treatment remains linked to its intended public-interest objective.

The existing inheritance tax system is undoubtedly complex and requires policy adjustments in certain areas. However, these individual shortcomings do not justify the conclusion that the entire system of tax relief is unconstitutional. In the BDI’s view, the existing framework takes appropriate account of the fundamental differences between freely disposable private assets and business assets tied up in productive use in a manner that is consistent with constitutional requirements.