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German Inheritance and Gift Tax Reform 2009

Tax Burden on the Transfer of Business Assets

Diplomarbeit 2009 91 Seiten

BWL - Rechnungswesen, Bilanzierung, Steuern

Leseprobe

Table of Contents

Preface to the English Version of this Thesis

List of Figures

List of Abbreviations

1 Background and Subject of this Thesis
1.1 Current Situation
1.2 Aim of this Thesis
1.3 Explanation of Approach

2 Evolution of the Legislation
2.1 Constitutional Framework
2.2 Decision of the BVerfG on 22 June 1995
2.3 Decision of the BVerfG on 7 November 2006
2.4 The Passed Bill

3 Chonology of Applicable Regulations
3.1 General Applicability
3.2 Issue of Retroactive Effectivity
3.3 Revokement and Cancelation Clauses

4 Reform of the Valuation Tax Act 2009
4.1 Overview
4.2 Valuation of the Business Assets
4.2.1 Definition of the Term of Business Assets
4.2.1.1 Economic Unit
4.2.1.2 Perimeter of the Business Assets
4.2.2 Simplified Capitalized Earnings Value Method (§ 200 BewG)
4.2.2.1 Sustainably Achievable Annual Revenue (§ 201 BewG)
4.2.2.2 Operating Result (§ 202 BewG)
4.2.2.3 Factor of Capitalization (§ 203 BewG)
4.2.3 The Minimum Value
4.3 Valuation of Shares in Corporations
4.3.1 General Valuation Principles
4.3.2 Derivation from Trading Transactions
4.3.3 Capitalized Earnings Value Method
4.3.4 Valuation of Shares in Corporations not Quoted
4.3.5 Amount of Business Assets of a Corporation
4.4 Valuation of Real Estate Property
4.4.1 General Valuation Principles
4.4.2 Valuation of Undeveloped Real Estate
4.4.3 Valuation of Developed Real Estate
4.4.3.1 Comparison Value Method
4.4.3.2 Capitalized Earnings Value Method
4.4.3.3 Tangible Asset Value Method
4.5 Valuation of Agriculture and Forestry Assets
4.5.1 Definition of Agriculture and Forestry Assets
4.5.2 Fair Market Value for Operating Units
4.5.3 Valuation
4.5.3.1 Determination of the Continuation Value
4.5.3.2 Minimun Value for Small-sized and Midium-sized Enterprises
4.5.3.3 Liquidation Value

5 Reform of the Inheritance and Gift Tax Act 2009
5.1 Overview
5.2 New Free Allowances
5.2.1 Personal Free Allowances (§ 16 ErbStG)
5.2.2 Free Allowances for Tangible Property (§ 13 ErbStG)
5.3 New Tax Rates (§ 19 ErbStG)
5.4 Rules for Preferential Treatment
5.4.1 Assets Qualified for Preferential Treatment (§ 13b sec. 1 ErbStG)
5.4.2 Business Assets (§ 13b sec. 1 no. 2 ErbStG)
5.5 Prefrential Treatment Regulations
5.5.1 Preferential Treatment Models (§ 13a ErbStG)
5.5.1.1 Standard Preferential Treatment (§ 13a sec. 1-7 ErbStG): Deduction for 85%
5.5.1.2 Total Exemption: Preferential Treatment Deduction for 100% (§ 13a sec. 8 ErbStG)
5.5.2 “Moving” Tax Allowance (§ 13b sec. 4 ErbStG)
5.5.3 Melting Regulation (§ 13a sec. 2 sentence 2 ErbStG)
5.6 Operative Assets for Tax Purposes
5.6.1 Determination of the Portion of the Operative Assets for Tax Purposes (§ 13b sec. 2 sentence 3-4 ErbStG)
5.6.2 „Young “ Operative Assets for Tax Purposes
5.7 Total Wages Regulation
5.7.1 Definition of the Total Wages Regulation (§ 13a sec. 4 ErbStG)
5.7.2 Base Total Wages and Salaries (§ 13a sec. 1 sentence 3 ErbStG)
5.8 Holding Regulations (§ 13a sec. 5 ErbStG)
5.9 Retroactive Taxation
5.9.1 Violation of the Total Wages and Salaries Clause
5.9.2 Violation of the Regualtions for Holding
5.9.2.1 Payment of Time-Proportional of Additional Tax (Principle)
5.9.2.2 Payment of Full-Extent Payment of Additional Tax (Total Exception)
5.9.3 Coincidence of Violation of the Holding Regulations and Total Wages and Salaries Violation

6 Effects and Calculations on Organisation Practice during the Transmission of Business Assets

7 Conclusion and Outlook

A P P E N D I X I: Figures

List of Case Law

Glossary English – German

Glossary German – English

Preface to the English Version of this Thesis

This is the English version of the Diploma Thesis “Erbschaft- und Schenkungsteuerreform 2009 – Belastungswirkungen bei der Übertragung von Betriebsvermögen” by the same Author. Compared to the German version, this version is slightly reduced in the content. It inlcudes the theoretical backgorund of the reform of the inheritance and gift tax as well as the conclusions drawn by the author. Only the illustrative examples (chapter 6) and appendices have been excluded; please refer to the German version for this additional information.

German readers not familiar with the particular vocabulary used in relation to the subject of inheritance- and gift taxation and its very recent change of legislation, a glossary is inlcuded at the end of this document for crossreference of the relevant German and English expressions.

List of Figures

Figure 4-1: Valuation of developed property

Figure 5-1: Personal free allowances: comparison of § 16 ErbStRG and § 16 ErbStG (a. F.)

Figure 5-2: Tangible free allowances: comparison of § 13 ErbStRG and § 13 ErbStG (o. v.)

Figure 5-3: Tax schedule as a function of the value of the taxpayer of acquisition: comparison of § 19 sec. 19 ErbStRG and § 19 sec. 1 ErbStG (o. v.)

Figure AI-1: Comparison of the valuation methods in new and old legislation

Figure AI-2: Valuation of business assets

Figure AI-3: Overview: valuation of business assets

Figure AI-4: Principle of the capitalized earnings value (§ 200 BewG)

Figure AI-5: Simplified capitalized earnings value method

Figure AI-6: Items to be added respectively deducted in the determination of the annual profit

Figure AI-7: Determination of the operating result (executive summary)

Figure AI-8: Determination of the operating result (calculation steps)

Figure AI-9: Valuation in the capitalized earnings value method – minimum value

Figure AI-10: Determination of the net-asset-/ minimum value

Figure AI-11: Valuation of real estate property

Figure AI-12: Valuation of non-developed property

Figure AI-13: Type of property, valuation method and legal basis

Figure AI-14: Valuation of real estate property by the capitalized earnings value method

Figure AI-15: Valuation of real estate property by the tangible asset value method

Figure AI-16: Overview: regulations of §§ 13a and 13b ErbStG

Figure AI-17: Preferal treatment of assets

Figure AI-18: Preferal treatment assets according to § 13b sec. 1 ErbStG

Figure AI-19: Valuation scheme: preferential treatment of assets I (= option 1: „7/15-option“) § 13a sec. 1 and 5 ErbStG

Figure AI-20: Valuation scheme: Preferential Treatment Assets II (= option 2: „10/0-option“) § 13a sec. 8 ErbStG

Figure AI-21: “Moving” tax allowance (§ 13a sec. 2 ErbStG)

Figure AI-22: Overview: operative assets for tax purposes according to § 13b sec. 2 sentence 2 no. 1-5 ErbStG

Figure AI-23: Overview of the types of assets

Figure AI-24: Calculation formula: 50 % respectively 10 % limit

Figure AI-25: Overview: violation of the subsequent holding period

Figure AI-26: Pro-rata-temporis-regulation for the transfer of business assets

Figure AI-27: Summary: valuation of developed property by capitalized earnings value method

Figure AI-28: Summary: valuation of developed property by value asset method

Figure AI-29: Melting-modell

List of Abbreviations

illustration not visible in this excerpt

1 Background and Subject of this Thesis

After long negotiations within the Grand Coalition (Große Coalition) and despite jurisdictional criticisms of numerous points, on 31st December 2008[1] the new inheritance and gift tax law (Erbschaftsteuerreformgesetz - ErbStRG) was published in the Federal Law Gazette (Bundedsgesetzblatt), to become effective on 1st January 2009 – just in time to avoid the need for retroactive regulations and the related discussions.

This marks the end of the discussion about the future of the inheritance tax that has been started by the decision of the Federal Constitutional Court (Bundesverfassungsgericht - BVerfG) from 7th November 2006[2]. The related uncertainity came to an end, at least for now.

In its decision the Federal Constitutional Court states, that the discrepance between fair market value and valuation value for significant groups of assets (business assets, portions of coporations, real estate property and agriculture and forestry (AF) businesses) are violating the principle of equality of § 3 sec. 1 of the German Basic Law (Grundgesetz - GG).[3] The legislative was obliged to define a new legislation in line with the constitution until 31 December 2008, latest.

On 11 December 2007, the German Federal Government (Bundesregierung) finally agreed on a draft revision of the inheritance and gift tax law and the valuation law. The German Federal Parliament (Bundestag) passed the inheritance tax reform on 27 November 2008[4] in the 2nd and 3rd reading, during which the finance committee of the German Parliament (Finanzausschuss des Bundestages) made considerable changes to the original draft.

The approval in the German Federal Council (Bundesrat) was obtained in the special session of the council on 5.12.2008, the approval of the Federal President (Bundespräsident) on 24.12.2008.

1.1 Current Situation

In addition to the changes necessary for constitutional reasons[5], the central concern of the reform is to simplify business takeover by the successors.[6] However, the legislator neither has had the courage to - as hoped by many - completely abolish inheritance taxation, not did he take the opportunity to perform a complete change of the inheritance taxation system which might become mandatory for constitutional reasons. The result is a compromise between of the various government parties: a law that amends the existing inheritance tax law on which it is based in a limited number of points.

The new inheritance and gift tax law poses a variety of new requirements to the tax consultants: unlike before, preferential treatment for the transition of business assets can often only be realized if carefully prepared. This becomes even more important, because the new tax valuation increases the tax risk significantly. On the other hand, the new legislation allows for more freedom to tailor the taxation of transferred assets than recognised in the public debate. Partially this freedom is due to shortfalls in the new law, and future amendments to correct these can be expected.

The ongoing and increasing - in some cases controversial - criticisms of the newinheritance tax law and valuation law by representatives of economics, consultants, auditing and various lobbies underlines the importance of the matter of burden effects on the transfer of business assets.

1.2 Aim of this Thesis

The primary aim and focus of this work is to give an overview over the new inheritance and gift tax laws as well as on the innovations of the corresponding valuation law. The resulting consequences of the inheritance tax burden on the transfer of business assets shall be presented in detail and numerous examples shall illustrated the practical application.

1.3 Explanation of Approach

First, in Chapter 2, the development of the law reform is summarized. The following Chapter 3 presents a brief overview of the temporal scope of the reform. The presentation of the changes effected by the reform of the valuation law is given in Chapter 4. The most significant changes of the ErbStRG with respect to bases and rates of the inheritance taxation are explained in Chapter 5 in conjunction with the new preferential treatment regulations, the total wages and salaries regulation and the clause introducing holding regulations.

Then, in Chapter 6, as embedded into examples illustrating how to deal with the new regulations in practice, issues are highlighted with which taxpayers and consultants will be confronted during the tailoring the transfer of assets.

Note that the content of chapter 6 is presented in the German version only.

Finally, in Chapter 7 the main results are summarized in a conclusion and a brief outlook on possible future developments is given.

2 Evolution of the Legislation

2.1 Constitutional Framework

The constitutional framework to the inheritance and gift taxation is the constitutionally guaranteed right to inherit. This is ensured as a legal institution as well as an individual fundamental right[7] and corresponds to the inheritance and gift tax. The guarantee of the private inheritance right secures stability for private property[8]. In the case of succession, private property is assigned again to a private citizen, and only in exceptional cases it is transferred to public institutions.

While the right to inherit ensures the correct transition of assets to a private successor, the inheritance tax shall secure an adequate the share of the assets for the state. The inheritance and gift tax covers substantial transitions of property caused by death and gifts. It taxes the resulting increase of the service capability of the beneficiary.[9] However, the legislator has to obey the constitutional constitutional framework that is protected by the jurisdiction of the Federal Constitutional Court.

2.2 Decision of the BVerfG on 22 June 1995

Already with the judgement from 22 June 1995[10] the BVerfG had decided that the tax burden on real estate property is substantially smaller with the so-called standard value than other assets, and this is not contradicting the Constitution. Therefore, the legislator had to define a new regulation by 31 December 1996. Consequently, the inheritance tax has been revised with the law from 28 December 1996, which became effective on 1 January 1996.

In its decision the BVerfG had not only demanded an even distribution of the tax burden as a precondition for an inheritance and gift tax, but also principles for the general limits of the taxation of property have been set up.[11] With the Annual Tax Law 1997 from 20.12.1996[12] the legislator complied with this request and introduced the so-called personal needs valuation of real estate for the purpose of the inheritance and gift tax effectively from 1 January 1996.

With the new regulation of the ErbStG, the valuation of real estate assests by standard values was replaced by personal need valuation. This personal need valuation was based in principle on the average capitalized earnings value of past three years. In comparison, unimproved real estate was assessed as 80% of the approximate value of the ground. The BVerfG did recognize that medium-size enterprises were excessively burdened by the ErbSt, which could threaten their economic basis.

2.3 Decision of the BVerfG on 7 November 2006

The Federal Constitutional Court decided with resolution from 7 November 2006[13] that the devitation of the valuation value from the fair market value in the cases of substantial types of assets (business assets, shares in corporations, real estate property and businesses in agriculture and forestry) violates the principle of equality based on Art. 3 sec. 1 German Basic Constitutional Law. Despite for all these kinds of assets a uniform tax rate is appicable, the taxation was based on a valuation far from the approximate market value.[14] The legislator was obliged to prepare until 31.12.2008 a constitutionally conform, realistic valuation of all types of assets including relief for the case of business succession due to inheritance or gift.[15]

At the time of the decision of the BVerfG a draft for an inheritance tax reform law was already available, however, only addressing new regulation for business succession.[16] Basis of this draft was the coalition agreement of 11.11.2005, which had its forerunners in the bills of the Federal Government[17] and the Federal Council of Germany[18] in the preceding legislative period. It intended to fully exclude enterprise assets from the inheritance tax under certain conditions.

The Federal Government implemented the political request with the draft of the law for relief of business succession (UntErlG). Core of the draft was a so-called melting model, according to which the inheritance tax is allotted to the assets qualified for preferential treatment, deferred to a period of ten years to become terminated in ten annual instalments. A precondition for this was that the business was continued comparable to the evolution of the overall economical conditions in Germany.[19] In parallel, a so-called low tax model with additional rules for deferment of payment for enterprise abilities was discussed.[20]

However, the working group of the federal states under the leadership of Kock and Steinbrück selected neither the melting nor the low tax model.[21] On the basis of their elaborated “corner points” a bill was compiled.[22] It took until 6.11.2008 to come to an agreement within the grand coalition could be obtained. On 11.11.2008 the requests for modification of the parliamentary groups of the CDU/CSU and SPD was presented to the German Federal Parliament. They contain some improved regulations compared to the original government bill. In particular total wages and keeping periods were shortened and the drop hatchet effect of offences against the business continuation clause was abolished.

2.4 The Passed Bill

The German Federal Parliament decided on 27.11.2008 in the 2nd and 3rd reading the inheritance tax reform (PlPr 16/190)[23] in the version of the resolution of the BT financial committee (16/11075)[24] from 25.11.2008. The Germany Federal Council agreed the bill on 5.12.2008.[25] The law was announced on 24.12.2008.[26] Thus the inheritance tax reform law (ErbStRG) came into effect according to Art. 6 sec. 1 ErbStRG on 1.1.2009.

3 Chonology of Applicable Regulations

3.1 General Applicability

In principle, the new valuation and inheritance tax law is applicable to all asset transfers within its scope starting from 1.1.2009.[27]

For benefits, which were made before that 1.1.2009, the old valuation and inheritance tax right are to be applied. As far as the benefits were or become legally effective after 31.12.2008, the new valuation and inheritance tax law is relevant. A right to chose does not exist.[28]

Also for transfers of assets due to death after 31.12.2006 and before 1.1.2009 the old right is applicable and for successions after that 31.12.2008 the new right is applicable.

Exception: only for inheritance there is a right to chose between to the application of the new right respectively the old right for the period from 1.1.2007 to 31.12.2008.

illustration not visible in this excerpt

3.2 Issue of Retroactive Effectivity

The coalition agreement between CDU, CSU and SPD of 11.11.2005 intended to apply the new regulations for assets qualified for preferential treatment according to §§ 13a, 19a ErbStG in principle to transfers of business assets, shares in corporations as well as agriculture and forestry assets, retroactively from 1.1.2007 if applied for.

This should have allowed for a most-favoured treatment regulation in favour of the taxpayer. According to this art. 3 sec. 1 ErbStRG[29] the beneficiary could request until the indisputability date of his tax valuation request that the regulations of the inheritance tax and gift law as changed by the inheritance tax reform and the valuation law on transfer due to death are appied for which the tax has been raised between 31.12.2006 and 1.1.2009.[30] The tax valuations were then to be amended accordingly (Art. 3 sec. 2 ErbStRG).

This right to chose is, however, explicitly not valid for the new, increased personal free allowances according to § 16 ErbStG.[31] Logically the right to votes comprises the new valuation and the new inheritance tax law without the new personal free allowances.[32] This is justified by the fact that

beneficiaries of assets that are not affected by higher valuations, could profit from the retroactive application of the new law in an unauthorized way.[33]

The consequence would be that already paid gift taxes would have to be refunded. By the restriction of the right to chose to transfers due to death cause such possibilities are excluded.

illustration not visible in this excerpt

3.3 Revokement and Cancelation Clauses

The § 37 sec. 3 ErbStG contains a special regulation: If assets qualified for preferential treatment are already subject to benefit from the same donor to the same person earlier than 1.1.2007, and if the assets qualified for preferential treatment must be returned the donor due to a contractual reaction clause (agreed after 11.11.2005), the preferential treatment is not valid for a renewed benefit of the fortune to the same person before 1.1.2011.

Since §§ 13a and 19a ErbStG in the past version were likewise not applicable any longer to this benefit after 31.12.2008, the benefit is not taxed as a favoured asset. This shall prevent that before that benefits transferred before 1.1.2007 under recourse to of the free allowance and the valuation reduction according to § 13a ErbStG are unwinded based on contractual revocation and resignation clauses.

The consequence is the reimbursement of the already paid gift tax in order to benefit a second time from the preferential treatment.

4 Reform of the Valuation Tax Act 2009

In this chapter the new valuation tax act is represented and described. After an overview the future valuation of the business assets and the portions of finance companies, the real estate property and the assets is presented to country and forest-economical.

4.1 Overview

In the center of the changes of the valuation tax act the changes of the valuation regulations are located for the business assets as well as the revised version of valuation regulations for the landed property. Operating values and portions of finance companies were received according to the earlier valuation regulations with systematically completely different values into the tax base with the inheritance and gift-expensively.[34] At quoted finance companies the fair market value (market prices) was set, private firm and partnerships were evaluated with the coincidental balance value of the individual restaurant goods.[35]

In the future an extremely complex new regulation is valid for the valuation of the business assets.[36] The valuation is regularly over § 12 sec. 5 ErbStG in § 109 ith Vth M. § 11 sec. 2 BewG. Business assets is set in the sense § 109 sec. 1 of the BewG in principle with its fair market value.[37] Against original bills the legislator decided to outsource the arrangement of the valuation regulations not into external valuation regulations to take up but directly to the valuation tax act with. Apart from these fundamental changes the among other things following important changes result in the valuation tax act:

- Revised version of the valuation regulations for the business assets (§§ 95 – 109 BewG)[38]
- Valuation regulations for portions of finance companies (§ 11 sec. 2 BewG, §§ 199 – 203 BewG)[39]
- Valuation regulations for the real estate property (§§ 176 – 198 )[40]
- Valuation regulations for country and forest-economical assets (§§ 158 – 175 BewG)[41].

The remaining - general - valuation regulations after the valuation tax act remained so far unchanged.[42] Valuation of Business Assets

4.2 Valuation of the Business Assets

4.2.1 Definition of the Term of Business Assets

Business assets according to ErbStG is one kind of fortune.[43] No distinction is made between commercial or freelance business assets. The business assets comprise the sum of all economic units of the business and shall be indicated in the inheritance tax return. The values of the individual economical units are to be determined separately and in addition appropriate explanations are to be delivered to the responsible local tax offices (§§ 152, 153 BewG). The individual valuations are basic answers with respect to the inheritance tax valuation notice (§ 175 sec. 1 No. 1 AO).

4.2.1.1 Economic Unit

For the further valuation it depends on whether a part of an asset and/or an entire asset can be assigned to the type of assets called business assets. Usually, the parts of a business asset are combined to a single economic unit. The following economic units can be considered:

- commercial or freelance private firms (gem. §§ 95, 96 BewG)
- direct an indirect shareholding in commercial or freelance unlisted corporations (§ 97 sec. 1 Nr. 5 BewG)
- shareholding in commercial partnerships.

In the case of shareholdings, each share is treated as one economical unit. Shares of corporationss belong in principle to the private assets. If they belong, however, in the business assets of a firm, they are taken into account in the valuation of the firm.

4.2.1.2 Perimeter of the Business Assets

The perimeter of business assets of the individual economic unit covers all parts of an industrial activity in the sense of § 15 sec. 1 and sec. 2 EStG, which for the valuation of the fiscal revenue belong to the business assets (§ 95 sec. 1 BewG).[44]

According to this, the item of valuation is represented by the economic entity in the sense of § 2 BewG. If more than one industrial activity belong to the same taxpayer, then a value of each of these industrial activities must be determined. For corporations, partnerships and real estates the economic goods are to be assigned to that business asset, to which they belong to. For partnerships also special business assets belong to the business assets (§ 97 sec. 1 Nr.5 BewG).

The range of the business assets is of importance for:

- Valuation of economic goods that do accordingly not belong to the business assets. These belong consequently to the remaining fortune and are - as before - to be accounted for using their fair market value;
- Minimum valuations of the business assets (§ 11 sec. 2 Sentence 3 BewG);
- Transfer of partial enterprises, substantial operating bases and single economic goods within the business assets. This can have influence on the preferential treatment and/or the valuation of transferred economic goods.
- Determination and valuation of goods not required for operation, shareholdings, and economic assets deposited in the business assets within the last two years (§ 200 BewG);
- Preferantial treatments for business assets: according to § 13b sec. 1 and sec. 2 ErbStG no favoured business asset is present, if the administrated assets amounts to more than half respectively more than one tenth of the total business assets.

In principle, the range of the business assets plays a subordinated role, since it is intended to give priority to the valuation based on the revenue without single assignment of the economic goods.

By means of reference § 12 sec. 1 ErbStG requires that the valuation of inherited assets and gifts following the rules of the first part of the valuation law (general valuation regulations).

Domestic business assets, for which a value has to be determined according to § 151 sec. 1 sentence 1 No. 2 BewG, are to be accounted for as in § 12 sec. 5 ErbStG based on the value determined on the comparison date for the valuation.

According to § 12 sec. 2 ErbStG, shares of corporationss, whose value shall be assessed following § 151 sec. 1 sentence 1 No. 3 BewG, shall be taken into account by the value determined on the comparison date of the valuation (§ 11 ErbStG).

Real estate [45] shall be accounted for in accordance with § 12 sec. 3 ErbStG by the value determined after § 151 sec. 1 No. 1 BewG on the comparison date of the valuation.

Foreign business assets and foreign real estate are assessed in accordance with § 12 sec. 7 ErbStG after § 31 BewG.[46]

The new legal regulation requires to assess business assets with the fair market value (§ 109 sec. 1 amounting to § 11 sec. 2 BewG). In many cases, this leads to higher valuations than if the old version of the BewG had been applied. Whether this results in a higher tax burden, depends on the new rules for favoured business assets.[47]

4.2.2 Simplified Capitalized Earnings Value Method (§ 200 BewG)

The legislator has for the first time implemented a simplified capitalized earnings value method for the determination of the fair market value of shares of a corporations (§ 11 sec. 2 sentence 2 BewG)[48] as well as the fair market value of the business assets or a parts of the business assets (§ 109 amounting to § 11 sec. 2 sentence 2 BewG).[49] It shall be used independent of the legal form for all types of the business assets. § 200 BewG limits the range of application of the valuation solely for valuation based on annual profit.[50]

§ 11 sec. 2 sentence 4 BewG contains a comparison on a simplified capitalized earnings value method in accordance with §§ 199 - 203 BewG. Beyond that § 199 sec. 1 and sec. 2 BewG mention again explicitly the scope of this simplified capitalized earnings value method.

The focus of this method is to allow assessing in an objective manner, with little efforts and without high expenditures for consultants, the value of a parts of a company or of entire companies on the basis of the profit prospects.[51]

This value shall be assigned, if it is higher than the net asset value (§ 11 sec. 2 sentence 3 BewG), provided, this procedure leads in individual cases not to obviously invalid results.[52]

The simplified capitalized earnings value method is not applicable, if for the type of business that is being evaluated another recognised valuation method is relevant (e.g. the multiplicator method). Application is also not valid for large-scale enterprises and enterprises with turnover above the limit of 32 million EUR, as regulated by the AntBVBewV. According to § 3 BpO, a large-scale enterprise is defined by this order of magnitude.

In principle the application of the simplified capitalized earnings value method is not compulsory, but it is the standard method for valuation.[53]

The legislator permits in future, however, the possibility to come back to typified valuation regulations.[54]

The simplified capitalized earnings value method can be applied in the following cases and the following conditions:

- Valuation of the fair market value of the business assets of industrial operations (§ 95 BewG) or the business assets of freelance activities (§ 96 BewG), as far as no superseding valuation is present after § 11 sec. 2 BewG.
- Valuation of the fair market value of a share of the business assets of a body, an association of individuals or a legal estate listed in § 97 BewG, as far as no superseding valuation is present after § 11 sec. 2 BewG.
- Valuation of the fair market value of shares of corporationss, as far as no superseding valuation is present after § 11 sec. 1 or sec. 2 BewG.[55]

In the simplified capitalized earnings value method the fair market value of the business assets (§ 200 sec. 1 BewG) results from[56]:

illustration not visible in this excerpt

Examples illustrating the simplified capitalised value method are given in chapter 6 (ref. to the German version)

4.2.2.1 Sustainably Achievable Annual Revenue (§ 201 BewG)

Theoretical basis for the valuation is the sustainably achievable annual revenue.[57]

In the context of the simplified capitalized earnings value method the sustainably achievable annual revenue is derived regularly from the average revenue of the last three financial years run off before the comparison date of the valuation. The operating results of the last three years are cumulated and divided the sum by the factor three.[58]

After § 201 sec. 2 BewG compellingly the result of the last financial year not run off yet is to be included.[59]

4.2.2.2 Operating Result (§ 202 BewG)

For the estimation of annual revenue one has to refer back to past operating results (§ 201 sec. 1 BewG). Thereby[60], the calculated profit of the corresponding finacial year in the sense of § 4 sec. 1 EStG (fiscal balance) shall be assumed. In the case of income-surplus-balancing (in accordance with §4 sec. 3 EStG), the surplus of the operating revenues minus the operating expenditure with consideration of deposits and transfers from reserves shall be used (§ 202 sec. 2 BewG).

In case of shareholding in partnerships, the results from special balances and auxiliary balances remain unconsidered. The annual value determined in such a way is the so-called Initial Value.[61] The profit deductions according to § 202 sec. 1 No. 1 BewG must be added to the operating result (per year) and the profit projection according to § 202 sec. 1 No. 2 BewG must be decuted.

These corrections are necessary, since the positions mentioned above either uniquely or do not affect the future annual revenue significantly. The additions after § 202 sec. 1 sentence 2 No. 1 FF. BewG are necessary, in order to exclude double accounting of the financial burden.

The appropriate entrepreneurial profit has to be deducted to maintain neutrality with respect to the legal form. The Initial Value (per year) corrected for additions and deductions must be reduced by the income tax for each individual business asset by around 30%.[62] [63]

The examples in Appendix I illustrate the determination of the operating result and the example in chapter 6.1.1.3 (German version) explain the determination of the business value.

4.2.2.3 Factor of Capitalization (§ 203 BewG)

Further essential point of the simplified capitalized earnings value method is the capitalization interest rate, which is set with determination of the capitalized earning valuation. This is compiled from the sum of the prime lending rate and a down together from the sum of the basis interest rate plus an surcharge of 4,5% (§ 203 sec. 1 BewG).

The prime lending rate derived from the long-term net return on long-term public loans. This is published by the BMF in the BStBl and is applicable for the entire year. With the letters from 07.01.2009 (BStBl 2009 I P. 14) the BMF has published this prime lending rate as 3,61% for 2009, for the first time. Thus the capitalization interest rate 3.61% amounts to + 4.5% = 8.11%.

The capitalization factor is now, in line with § 203 sec. 3 BewG, the reciprocal value of the capitalization interest rate. This yields 1/8.11% = 12,33.[64]

4.2.3 The Minimum Value

In addition, and independent of the individual valuation method, a lower limit of the valuation shall be considered. This is valid for all kinds of valuation, also in the context of the simplified capitalized earnings value method after § 199 FF. BewG.[65] [66]

The § 11 sec. 2 sentence 3 BewG excludes the valuation based on profit prospects, in case the result of the simplified capitalized earnings value method is smaller than the sum of fair market values of the business assets goods and inclusions (net asset value) minus liabilities. This case arises, if e.g. the business assets contain relatively valuable self-used or presently unused real estate properties. In order to avoid negative earnings for the business, a comparative calculation shall be performed if in the doubt. In order to assess the value all business assets, it is necessary to perform an inventory-taking at the comparison date of the taxation.[67] [68]

4.3 Valuation of Shares in Corporations

4.3.1 General Valuation Principles

In principle shares in corporations can be in private possession or part of business assets.[69] In both cases valuation shall consider with priority

- stock exchange quotation
- purchase price derivation
- methods of valuation used in the usual course of business.

Shares in corporations shall be assessed in accordance with § 11 sec. 1 BewG in principle by using the quoted exchange rate, or in accordance with § 11 sec. 2 sentence 1 BewG by giving priority to derived purchase prices from contemporary sales, or exceptionally with an estimated fair market value that takes into account the future profit prospects, in order to include them into the basis for the inheritance valuation.

The systematics of the valuation law regarding the valuation of share of corporationss in principle does not change. Therefore, the priority of the valuation based on the stock exchange rate § 11 sec. 1 BewG remains applicable.[70]

§ 11 sec. 2 BewG concerns primarily the shares of corporationss, for which no quoted exchange rate is exists or the exchange rate cannot be determined.

Primarily the fair market value of a business shall to be derived from trading[71] that is not older than one year on the comparison date of the valuation. If the fair market value cannot be derived from contemporary trading, the valuation for inheritance taxation is based on a legally typified, simplified capitalized earnings value method (so far the Stuttgart method), if this method does not lead to obviously wrong results (§§ 199 ff.. BewG).

The simplified capitalized earnings value method can be applied to any king of business assets by § 109 sec. 1 sentence 2 BewG. Due to the comparisonss in § 109 sec. 1 sentence 2 and in sec. 2 sentence 2 BewG, the valuation regulation is valid for all economical units of the business assets, independent of the legal form of the organisation.[72]

4.3.2 Derivation from Trading Transactions

The derivatition of the fair market value from sales is in practice rather the exceptional case, since such net assets are as a rule rarely subject to monetary trading activities.[73] According to § 11 sec. 2 BewG the transaction must not be older than one year on the comparison date of the valuation. The wording of the law only refers to transactions in the past and non-contemporary transactions after the inheritance respectively the gift. Here the past administrative position (R 95 sec. 3 ErbStR 2003) and the past jurisdiction are valid.[74] Therefore purchase prices, which are older than one year, are not considered.[75]

Also, only sales between independent third parties are considered.[76] In practice this can only concern shareholding (e.g. KG shares). For private firms an valuation based on trading seems not practicable.[77]

illustration not visible in this excerpt

The testator was involved in a KG. Within the last year, shares have been sold by a by a shareholder to a third, independent party. Here an valuation would be possible to the selling price.

4.3.3 Capitalized Earnings Value Method

If a derivation from trading of shares is not possible, then the value of the business assets shall be assessed under consideration of the revenue prospects of the corporations or by other recognised methods (§ 11 sec. 2 P. 1 BewG). Here, priority shall be given to valuation method that a purchaser would use to calculate a realistic purchase price. Suitable methods are the capitalized earnings value method according to the IDW S 1, the discountet cash-flow method, the AHW standard as well as the multiplicator method. The results always are to be compared with the, because according to § 11 sec. 2 BewG at least the sum of the fair market values of single economic goods less debts (net asset value) must be assigned.[78]

4.3.4 Valuation of Shares in Corporations not Quoted

In principle § 11 sec. for 2 sentence 2 and 3 BewG is applicable to the valuation not quoted shares in corporations:

- valuation by the purchase price from transfers between third, less than one year old (market value method) or
- other recognised methods normally applied in the usual course of business for not fiscal purposes or
- valuation based on the profit prospects (total valuation methods) or
- at least the sum of the individual business assets (individual valuation methods).

§ 11 sec. 2 sentence 2 BewG requests a valuation of shares, whereby the profit prospects are considered. The previously used Stuttgart method were valid only until 31.12.2008.

According to § 199 sec. 1 BewG the simplified capitalized earnings value method is used. In the simplified capitalized earnings value method the future effectively achievable annual revenues are multiplied by a capitalization factor and result in the fair market value of the corporation. This is then distributed proportionately (quotal) among the individual shareholding.[79] The assets of a corporation shall be assessed like business assets.

4.3.5 Amount of Business Assets of a Corporation

In principle the economic goods of the corpoations (property by civil law) belong also to their business assets (§ 97 sec. 1 BewG). Economic goods that belong economically to the corporation cannot be passed on (indirectly). During the valuation by trading prices or by the profit it depends only to a very limited extend on the range of the business assets of the corporation. For example if assets not necessary for operation or shares or economic good deposited within the last two years are among the business assets.

Real estate property within the assets of corporationss shall be included only if

- they are to be classified as not necessary for business operations,
- a minimum assets valuation has to be performed or
- they are donated from the assets in separately from the assets of the corporation.

The fair market value results - differently from the previously used Stuttgart method - not from a percentage of the nominal capital, but shows the (entire) fair market value of the corporation.[80]

4.4 Valuation of Real Estate Property

4.4.1 General Valuation Principles

The valuation of real estate property was regulated by the ErbStRG again in a typified manner, with the intention to principally follow the determination of the market value in accordance to the Wertermittlungsverordnung (WertV) of 6.12.1988[81].

Before 1.1.2009 the valuation of the real estate property was performed using real estate values from § 138pp BewG, which was one of the major points of criticism of the BVerfG in its resolution from 7.11.2006[82] that rendered the earlier arrangement of the inheritance tax law constitutionally not acceptable.

[...]


[1] BGBl. I 2008 p. 3018.

[2] BVerfG-Resolution of 7.11.2006 – 1 BvL 10/02, DB 2007 p. 320.

[3] See STRAUBHAAR, T., Abschaffen, 2007, p. 291.

[4] Gesetz zur Reform der Erbschaftsteuer- und des Bewertungsrechts – Erbschaftsteuerreformgesetz (ErbStRG), BR-Druckp. 888/08; See http://www.der-betrieb.de/pdf/ErbStRG.pdf.

[5] See BVerfG of 7.11.2006, 1 BvL 10/02, DStR 2007, p. 256, ZEV 2007, p. 76 m. Anm. Piltz.

[6] See BT-Drp. 16/7918 p. 1. After BVerfG of 22.6.1995, 2 BvR 552/91, DStR 1995, p. 1348.

[7] BVerfG, Decision of 16.10.1984 – 1 BvR 513/78, BVerfGE 67, p. 329-340.

[8] KIPP, T./ COING, H., Erbrecht, 14. issue, § 1 sec. 1 ErbStG.

[9] See BVerfG of 7.11.2007, DStR 2007, p. 235, 240.

[10] 2 BvR 552/91, BStBl, 1995 II p. 671.

[11] See RADEISEN, R., Erbschaftsteuerreform, 2008, p. 4.

[12] BGBl 1996 I, p. 2049.

[13] BVerfG of 7.11.2006 – BStBl II 1995, DStR 2007, p. 235 ff.

[14] See MANNEK, W./ JARDIN, A., Grundbesitzbewertung, 2009, p. 307.

[15] See WEHRHEIM, M./ RUPP, D., Betriebsaufspaltung, 2008, p. 1455.

[16] See „Entwurf eines Gesetzes zur Erleichterung der Unternehmensnachfolge“ of 3.11.2006, BR-Drs. 778/06.

[17] BT-Drs. 15/5555.

[18] BT-Drs. 15/5604.

[19] See § 28 sec. 1 and 2 to Gesetzentwurfes of 3.11.2006, BR-Drp. 778/06.

[20] Handelsblatt, 20.9.2007, p. 4.

[21] See Ergebnispapier der Bund/Länder-Arbeitsgruppe of 7.11.2007, Internet: http:www.rsw.beck.de/rsw/shop.

[22] Gesetzentwurf of 23.1.2008, BR-Drs. 4/08.

[23] Internet: http://dip21.bundestag.de/dip21/btp/16/16190.pdf#p.20439.

[24] Internet: http:// dip21.bundestag.de/dip21/btp/16/110/1611075.pdf.

[25] BR-Drucksache 888/08(B) (Internet: http://dip21.bundestag.de/dip21/brd/2008/0888-08B.pdf).

[26] BGBl I p. 3018.

[27] § 37 sec. 1 ErbStG and § 205 sec. 1 BewG in conjunction Art. 6 sec. 1 ErbStRG.

[28] Critically: CREZELIUS, G., Entwurf, 2007, p. 2277 ff.

[29] „retroactive application of the inheritance and valution legislation effected by this law“.

[30] See Art. 3 sec. 2 ErbStRG.

[31] See Art. 3 sec. 1 sentence 1 ErbStRG.

[32] See Art. 3 sec. 1 sentence 2 ErbStRG.

[33] BR-Drs. of 4.1.2008, 4/08, ErbStRG, Gesetzesbegründung, Art. 3, p. 79.

[34] See PACH-HANSENHEIMB, F., Verschonungsabschlag, 2009, p. 466; see HÖLZERKOPF, F./ BAUER, D., Gestaltungshinweise, 2009, p. 20.

[35] See RADEISEN, R., Erbschaftsteuerreform, 2008, p. 117.

[36] See SPENGEL, C./ ELCHNER, C., Bewertung, 2008, p. 4; EISELE, D., Bewertungsrecht, 2008, p. 695.

[37] See appendix I, A1: Comparison of the valuation methods in new and old legislation, p. 46.

[38] See chapter 4.2.

[39] See chapter 4.3.

[40] See chapter 4.4.

[41] See chapter 4.5.

[42] See RADEISEN, R., Erbschaftsteuerreform, 2008, p. 25.

[43] § 18 no. 3 BewG.

[44] See RADEISEN, R., Erbschaftsteuerreform, 2008, p. 25.

[45] Agriculture and forestry assets and real estate property including properties of an enterprise, see § 19 BewG

[46] This work only deals in the following with domestic business assets.

[47] See STÜTZEL, D., Chance, 2009, p. 844.

[48] See examples I and II, and example III and IV, chapter 6.1.1.2 (refer to german version).

[49] See RADEISEN, R., Erbschaftsteuerreform, 2008, p. 125.

[50] See HALACZINSKY, R./ RIEDEL, C., Erbschaftsteuerrecht, 2009, p. 128.

[51] See EISELE, D., Erbschaftsteuerreform, 2009, p. 191.

[52] There is no closer definition for „obviously unfounded result” in the law.

[53] See HALACZINSKY, R./ RIEDEL, C., Erbschaftsteuerrecht, 2009, p. 128.

[54] See EISELE, D., Erbschaftsteuerreform, 2009, p. 191.

[55] See RADEISEN, R., Erbschaftsteuerreform, 2008, p. 125.

[56] See appendix I, A4: Principle of the capitalized earnings value (§ 200 BewG), p. 48.

[57] See HALACZINSKY, R./ RIEDEL, C., Erbschaftsteuerrecht, 2009, p. 130.

[58] See appendix I, A5: Simplified capitalized earnings value method, p. 59.

[59] See other example I and example II, chapter 6.1.1.3 (refer to german version).

[60] See example, chapter 6.1.1.3 (refer to german version).

[61] See appendix I, A6: Items to be added respectively deducted in the determination of the annual profit, p. 50.

[62] See HALACZINSKY, R./ RIEDEL, C., Erbschaftsteuerrecht, 2009, p. 131-133.

[63] See appendix I, A7: Determination of the operating result (executive summary), p. 50; see appendix I, A8: Determination of the operating result (calculation steps), p. 51.

[64] See SCHULTE, W./ BIRNBAUM, M./ HINKERS, J., Unternehmensvermögen, 2009, p. 301.

[65] See RADEISEN, R., Erbschaftsteuerreform, 2008, p. 133.

[66] See appendix I, A9: Valuation in the capitalized earnings value method – minimum value, p. 52.

[67] See HALACZINSKY, R./ RIEDEL, C., Erbschaftsteuerrecht, 2009, p. 134.

[68] See appendix I, A10: Determination of the net-asset-/ minimum value (§ 11 sec. 2 sentence 3 BewG)“, p. 52.

[69] See HALACZINSKY, R./ RIEDEL, C., Erbschaftsteuerrecht, 2009, p. 141.

[70] See appendix I, A3: Overview: valuation of business assets, p. 47.

[71] Explanation in chapter 4.2.2.

[72] See appendix I, A2: Valuation of business assets, p. 47.

[73] See RADEISEN, R., Erbschaftsteuerreform, 2008, p. 123.

[74] BFH of 8.8.2001 – II B 109/00, BFH/NV 2002, p. 319.

[75] See ONDERKA, W./ HANNES, F., AntBVBewV, 2008, p. 173.

[76] See ONDERKA, W./ HANNES, F., AntBVBewV, 2008, p. 173.

[77] See HALACZINSKY, R./ RIEDEL, C., Erbschaftsteuerrecht, 2009, p. 125.

[78] See HALACZINSKY, R./ RIEDEL, C., Erbschaftsteuerrecht, 2009, p. 126-127.

[79] Explanation in chapter 4.2.4.

[80] See HALACZINSKY, R./ RIEDEL, C., Erbschaftsteuerrecht, 2009, p. 143.

[81] WertV of 6.12.1988, BGBl. I 1988, p. 2209.

[82] BVerfG, resolution of 7.11.2006, 1 BvL 10/02, BStBl II 2007, 192 – see also chapter 2.3.

Details

Seiten
91
Erscheinungsform
Originalausgabe
Jahr
2009
ISBN (eBook)
9783836637824
Dateigröße
980 KB
Sprache
Englisch
Katalognummer
v227318
Institution / Hochschule
Leuphana Universität Lüneburg – Fakultät Wirtschafts-, Verhaltens- und Rechtswissenschaften, Betriebswirtschaftslehre, Rechnungswesen und Steuerlehre
Note
1,8
Schlagworte
inheritance reform gift asset

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Titel: German Inheritance and Gift Tax Reform 2009