Our Sponsors

VIPCoFCCGBroadridgeLink Market Services GmbHAHEADhermesDP DHLK+SSAPGeorgesonSuedzuckerWacker Chemie AGThomson ReutersEQS Group

Search

VIPsight

Corporate Governance – portrayed in the individual cultural and legal framework, from the standpoint of equity capital.

VIPsight is a dynamic photo archive, sorted by nations and dates, by and for those interested in CG from all over the world.

VIPsight offers, every month:
transparent and independent current information / comments / facts and figures on corporate governance locally and internationally,

  • written by local CG experts,
  • selected and structured by the Club of Florence,
  • financed by its initiator VIP and other sponsors with a background of “Equity and Advisory” interests.
     

VIPsight International


Article Index

 

 

The German Mittelstand

 

 

Inheritance tax reform will have a major impact on smaller SMEs

In early July, the Federal Government called a halt to the process of inheritance tax reform that had been so widely debated by SME associations and lobbyists, making radical change seem increasingly remote. The draft bill on SME company inheritance is expected to maintain the same special provision as presently in force. Proprietors who manage their own companies for at least five years, or do so by probate and satisfy certain other conditions have the right to an 85 percent inheritance tax rebate. After seven years and a fixed wage bill, the company’s inheritance tax liability is nil.

[http://www.bundesfinanzministerium.de/Content/DE/Downloads/Gesetze/2015-07-08-G-z-Anpassung-d-ErbStR-u-SchenkSt-a-d-Rspr-d-BVerfG.pdf?__blob=publicationFile&v=2].

On the one hand the Family Business Foundation views the proposal as a major step in the right direction compared to the first draft bill of January 2015, while the Chairman of the Federal Association of SME-generated Economy (Budnesverband mittelständische Wirtschaft – BVMW), Mario Ohoven, is strongly opposed to it. “The compromise struck among the parties of the governing coalition runs counter to the interests of German SMEs.“ At first sight, that doesn’t seem to ring true being that the governing coalition’s aim is not only to improve taxation fairness but also to maintain employment levels and to stop the haemorrhage of companies and entrepreneurs. This is why the fiscal benefits for whoever inherits a company should be withheld until a set period of time has passed. As it stands, legislation is meant to orient company management towards more long-term strategies.

The draft bill, therefore, is only felt as being harsh by the many who inherit small companies. The problem is that up to now, inheritors of companies with fewer than 20 employees were exempt from submitting documentation attesting to due dates and wage bills but this exemption will now only apply to companies with staff of fewer than five. This, apparently minor amendment is reportedly causing major headaches. According to the SME Institute in Bonn, there are some 3.24 million very small companies – 89.3 percent of up to all registered companies, which, by definition can have 9 staff and post a turnover of up 2 million Euros.

The brunt of the new law is again borne by small companies who are finding it proportionately much harder to meet due dates and wage bills and their size or lack thereof makes them susceptible to market peaks and troughs. When the will to carry on the business dwindles and fades, finding an external manager becomes a costly enterprise especially one willing to accept the challenge and possess the skills to make it a success.

The legislator has reached a point that calls for reflection on whether legislation with self-defeating objectives is being put in place.

Start-ups, make an indispensible contribution towards strengthening the nation’s economy and fostering its thrust in innovation, and the small enterprises especially deserve greater consideration. It remains to be seen whether the issue will be tabled for negotiation very small companies have no lobbying clout.