German Federal Court Reviews Fairness of Inheritance Tax Exemptions for Businesses

The German Federal Constitutional Court (Bundesverfassungsgericht) is currently examining the fairness and social justice implications of inheritance tax laws, especially the tax exemptions granted to business assets. This review stems from a constitutional complaint by Heinrich Fischwasser, who argues that inheriting stocks and real estate is taxed more heavily compared to inheriting companies, which often benefit from large exemptions. President Stephan Harbarth of the court emphasized the need for equitable tax treatment for all taxpayers, noting the sensitive balance between protecting businesses and addressing social justice.

Currently, businesses, particularly small and medium-sized enterprises, can receive up to 85% relief on inheritance taxes if they maintain operations for five years and preserve employment levels. Larger companies may avoid taxes altogether based on liquidity assessments. Critics like Julia Jirmann of the Network for Tax Justice argue these provisions allow heirs to artificially lower their declared wealth and evade taxes, fostering wealth concentration and undermining democracy. Kevin Kühnert, former SPD secretary, highlighted that only about 2% of large inheritances are currently taxed, disproportionately favoring wealthy estates.

Entrepreneurs remain divided on the issue. Peter-Christian Zinn from the Ruhr area contends the tax system favors wealth over income and calls for a fairer inheritance tax that would encourage innovation and startups rather than protect established enterprises. In contrast, Hendrik Schabsky, owner of a family shoe business, stresses that exemptions are critical for business continuity, as tax liabilities based on company valuation are often unaffordable.

The court's last significant review in 2014 criticized unequal tax assessments, prompting reforms in 2016 which introduced need-based assessments for inheritances exceeding 26 million euros. Yet, many experts argue these measures still inadequately address wealth inequality and fail to generate substantial tax revenues, as many beneficiaries receive large waivers.

A ruling from the Bundesverfassungsgericht is expected early next year, with the potential to reshape inheritance tax policy and impact the long-standing political debate over balancing fairness, business preservation, and wealth redistribution in Germany.