nach oben

Journal of Business Economics

Erschienen in:

24.02.2016 | Original Paper

Who benefits from the preferential treatment of business property under the German inheritance tax?

verfasst von: Benedikt Franke, Dirk Simons, Dennis Voeller

Erschienen in: Journal of Business Economics | Ausgabe 9/2016

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

This paper contributes to the recent debate on the tax privilege for business property introduced by the German Inheritance Tax Act of 2009. We shed light on the tax effects of the preferential treatment based on micro-level data of realized business transfers from the German Inheritance Tax Statistic. As the tax exemptions are tied to employment expenses of the transferred business, we combine information from the tax statistic with a simulation of future employment expenses. We then compare the effective tax rates under a preferential treatment to the ones under a non-preferential treatment alternative. Results show that a large portion of business successions is untaxed under the current German inheritance tax law and that average effective tax rates approach zero. Moreover, the preferential treatment levels the differences between the effective taxation of small and large transfers and leads to an almost equal effective tax rate across all tax brackets. We also demonstrate that tax reductions are considerably larger in times of economic growth where the requirements for a preferential treatment are more likely to be met.

Vorheriger Artikel A little less waiting, a little more action? Inheritance tax planning under lifespan uncertainty

Nächster Artikel Quality kills the mediastar? Career paths of intellectuals

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Journal of Business Economics

From January 2013, the Zeitschrift für Betriebswirtschaft (ZfB) is published in English under the title Journal of Business Economics (JBE). The Journal of Business Economics (JBE) aims at encouraging theoretical and applied research in the field of business economics and business administration, promoting the exchange of ideas between science and practice.

Jetzt informieren

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Nur mit Berechtigung zugänglich

The presented results are based on FDZ (2012) and own calculations.

To ensure privacy of the tax filings that is protected by German law, the data is not publicly available. Therefore, our analyses are conducted in cooperation with the Research Data Centre of the German Federal Statistical Office and the Statistical Offices of the Länder.

As mentioned before, about 64 % of the transfers would not have to pay inheritance tax even in the absence of any preferential provisions for business transfers, e.g., due to tax exemptions on the personal level.

For the relevant subsample of firms that could potentially benefit from a preferential treatment, mean effective tax rates increase from 0.22 % to 0.65 % and the standard deviation rises from 1.03 % to 1.99 %.

As a recent example, see the US administration’s plan for a business tax reform that envisions the elimination of seemingly unjustified subsidies and a broader tax base as a precondition for a more effective tax system (The White House 2012).

The methodological difference is in line with Friedman’s postulate that assumptions of a theory do not need to be realistic but “sufficiently good approximations for the purpose in hand” (Friedman 1966, p. 15). In that sense, the assumptions made in Simons et al. (2012) are sufficient to answer the question which one of the two tax alternatives should be chosen. However, a quantification of the tax effects requires a more extensive and more detailed consideration of the potential determinants.

In the following, we use the term inheritance tax for the German inheritance and gift tax. With some minor exceptions, e.g., a special tax exemption for children after the death of their parents, transfers after death and inter vivos transfers are treated equally under German law. In the US, the term estate tax is more frequently used. For a detailed description of the US estate tax system see, for example, Batchelder (2009).

We address possible implications of these assumptions in Sects. 5.4 and 5.5. The results suggest that our main results are not materially affected.

For a detailed explanation of the computation see Simons et al. (2012).

Simons et al. (2012) assume proportional tax rates in their analysis. Analytically, they show that this assumption should not materially affect the choice between the standard and the option plan (Simons et al. 2012, p. 22). However, to allow for an accurate quantification of the resulting effective tax rates we use the exact tax schedule including the hardship provisions granted by the German inheritance tax code.

Please note that the effective tax rates in this study refer to the value of a specific transfer, not to the entire wealth transferred to a person. A potential problem of using the transfer-specific statistic of 2011 arises if more than one taxable transfer occurs within 10 years, but not all transfers are already recorded in the statistic. In this case, we would underestimate the effective tax rates. Since there are little economic incentives for such a behavior we do not expect this issue to materially affect our results. For practical problems in determining the value of transferred business see, e.g., Müller and Sureth (2011).

Note that the information provided in Table 1 allows us to extend the study of Simons et al. (2012), e.g., in that we are able to base our analysis on the empirical incidence of the 15 cases described in Simons et al. (2012, p. 10).

The indices represent the corresponding paragraphs of the German inheritance tax code.

As in many European countries, close relatives can use additional tax exemptions compared to third-party transfers [for an overview see (Næss-Schmidt et al. 2011; Eurostat 2012)].

While the non-preferential treatment requires an upfront tax payment, both preferential treatment alternatives lead to a partial deferral of tax payments. Thus, assuming a positive interest rate would lead to even higher differences between the non-preferential and the preferential treatment. Moreover, the effective tax rates shown can be interpreted as upper bounds since a positive interest rate would lead to a lower net present value of tax payments.

The respective intervals are chosen based on the classification of the publicly available version of the German Inheritance Tax Statistic of 2011.

We use the VLLMS version of the database, accessed through WRDS. Last access was in October 2015. While Amadeus offers firm-level data, it is not possible to link individual transfers recorded in the inheritance tax statistic to a specific firm due to data protection under the German law.

We use the median of the empirical distribution to mitigate the influence of outliers.

In contrast to the study of Simons et al. (2012) who employ both a binomial and a Markov model to approximate the development of employment expenses we use the empirical distribution based on German companies included in Amadeus. This allows for a more detailed and more descriptive analysis.

While this assumption may be theoretically important, it is practically irrelevant for our simulation since negative draws never occur. The same holds for the alternative specification reported in Appendix C.

To mitigate the influence of outliers, we only consider firms with total assets between 1 million euro and 151,000,000 million euro and truncate the growth rates at the bottom and top 1 %-level. Figure 4 in Appendix A suggests that the normal distribution used in our simulations is the most reasonable approximation of the empirical distribution.

In the resulting subsample, we truncate employment growth rates at the bottom and top 1 %-level.

Using the same set of transfers for both the preferential and the non-preferential treatment rules out selection bias.

Effective tax rates are computed as the percentage share of tax payments in the value of transferred property before any tax exemption, i.e., \(T_i / X\), for \(i \in \{ OP, SP, PRIV \}\).

Slight deviations regarding the number of runs are rounding differences.

The percentage is taken from a survey among German family businesses conducted by the Ifo Institute in 2014 (Potrafke et al. 2014, p.21).

The estimated fiscal revenue under the preferential treatment is calculated by multiplying the average tax payments of 47,841 euro (14,283 euro) that result under the standard plan (option plan) with the number of eligible transfers (14,800 \(\cdot\) 0.62). Accordingly, the estimated revenue under a non-preferential treatment results from multiplying the average tax payment of 386,038 euro with the number of eligible transfers (14,800 \(\cdot\) 0.62).

Our data also shows that especially inter vivos transfers which are typically smaller than transfers after death are excluded from the analysis.

We jointly consider the effect of multiple factors in Sect. 5.2, where we extend our analysis to a multivariate setup. Thereby, we are able to analyze the effect of a variation in one factor while holding all other factors constant.

Note that the effective tax rates under a non-preferential treatment remain unchanged compared to Table 4 as tax provisions for private property do not provide any tax reductions based on the development of employment expenses.

According to the our approach in the previous sections we assume r to equal zero.

For example, if we assume the average equity ratio for German SMEs in 2012 of 27.4 % (Kreditanstalt für Wiederaufbau 2013), a business with initial employment expenses of 800,000 euro would only meet the threshold if its property value exceeded 55.089 million euro.

This time period equals the one used to determine the parameters of our simulation. We again truncate the distribution at the top and bottom 1 %-level. The exact values for the 25-, 50-, and 75 %-quantiles of the distribution are 0.52, 1.28, and 3.19, respectively. These ratios remain fairly stable over time. Note that the market value of equity could be higher. We refer to shareholders’ equity to be consistent with our simulation and since market values are only available for relatively large listed companies.

Since we conjointly include the runs for the option and the standard plan in our estimations, we suppress the subscripts used in the previous sections.

As tax payments cannot be negative by definition, we use a censored regression model instead of standard OLS regressions to avoid estimation bias.

The variables \(\Delta _{(1)-(2)}\) and \(\Delta _{(3)-(4)}\) provide the differences between the coefficients shown in columns (1) and (2) or (3) and (4), respectively.

We use shareholders’ equity as provided in the Amadeus database as a proxy for firm size since this variable can arguably be linked to the size of the transferred property X.

Detailed results are available upon request.

In addition, please also note that our main analyses in Sects. 4.1 and 4.2 are based on a subsample that mostly consists of medium-sized and large transfers.

For the development of the current reform draft and the earlier parliamentary discussion see, e.g., BMFI (2015b), Deutscher Bundestag (2015b), and Deutscher Bundestag (2015a).

To qualify as a family business, the reform draft requires that the company agreement includes provisions to restrict distributions to the owners, ties ownership rights to family membership, and provides monetary incentives for personal continuity.

Specifically, the 90th and the 95th quantile in Panel C of Table 1 suggest that less than 100 transfers exceed the projected size thresholds.

See Simons et al. (2012) for an analysis of the optimal choice of a respective treatment alternative.

For the mining industry, growth rates of wages and salaries are only provided until 2008 by the national accounts.

Batchelder L (2009) Estate tax reform: issues and options. Tax Notes, NYU Law and Economics Research Papers No. 09-02

BMFI–Bundesministerium der Finanzen (2015a) Entwurf eines Gesetzes zur Anpassung des Erbschaftsteuer-und Schenkungsteuergesetzes an die Rechtsprechung des Bundesverfassungsgerichts. Gesetzentwurf der Bundesregierung, 8.7.2015 [Draft of the German Federal Cabinet for an amendment of the Inheritance and Gift Tax Law to comply with the jurisdiction of the German Federal Constitutional Court]

BMFI–Bundesministerium der Finanzen (2015b) Referentenentwurf des Bundesministeriums der Finanzen. Entwurf eines Gesetzes zur Anpassung des Erbschaftsteuer-und Schenkungsteuergesetzes an die Rechtsprechung des Bundesverfassungsgerichts, 6.1.2015 [First Draft of the German Federal Cabinet for an amendment of the Inheritance and Gift Tax Law to comply with the jurisdiction of the German Federal Constitutional Court]

BVerfG–Bundesverfassungsgericht (2014) Urteil vom 17. Dezember 2014 (1 BvL 21/12) [Decision of the German Federal Constitutional Court]

Destatis–Statistisches Bundesamt (2011) VGR der Länder–Arbeitnehmerentgelt, Bruttolöhne und-gehälter in den Ländern [German National Statistical Office–National accounts–gross wages and salaries]. Wiesbaden

Deutscher Bundestag (2015a) Antwort der Bundesregierung auf die Kleine Anfrage der Abgeordneten Lisa Paus, Dr. Gerhard Schick, Dr. Thomas Gambke, weiterer Abgeordneter und der Fraktion Bündnis 90/Die Grünen) [Response of the German Government to the Minor Interpellation of the parliamentary group of the Green Party]. In: Bundestags-Drucksache 18/5055, 6/1/2015:1–8

Deutscher Bundestag (2015b) Kleine Anfrage der Abgeordneten Lisa Paus, Dr. Gerhard Schick, Dr. Thomas Gambke, Britta Haßelmann, Anja Hajduk, Dieter Janecek, Markus Kurth, Dr. Tobias Lindner, Beate Müller-Gemmeke, Corinna Rüffer und der Fraktion Bündnis 90 / Die Grünen) [Minor Interpellation of the parliamentary group of the Green Party]. In: Bundestags-Drucksache 18/4849, 5/6/2015:1–5

Eurostat–European Commission (2012) Taxation trends in the European Union. Data for the EU member states, Iceland and Norway

FDZ der Statistischen Ämter des Bundes und der Länder (2012) Erbschaft- und Schenkungssteuerstatistik 2011 [Research Data Centre of the German Federal Statistical Office and the Statistical Offices of the Länder - Inheritance and gift tax statistics 2011]. Wiesbaden

Friedman M (1966) The methodology of positive economics. In: Friedman M (ed) Essays in positive economics. Chicago University Press

Houben H, Maiterth R (2011) Endangering of businesses by the German inheritance tax? An empirical analysis. Bus Res 4(1):32–46CrossRef

Kopczuk W (2013) Taxation and intergenerational transfer of wealth. In: Auerbach A, Chetty R, Feldstein M, Saez E (eds) Handbook of public economics. Elsevier

Kreditanstalt für Wiederaufbau (2013) KfW-Mittelstandspanel 2013 [KfW Panel on small and medium entities 2013]. Frankfurt, Germany

Miller D, Steier L, Le Breton-Miller I (2003) Lost in time: intergenerational succession, change, and failure in family business. J Bus Ventur 18(4):513–531CrossRef

Müller J, Sureth C (2011) Marktnahe Bewertung von Unternehmen nach der Erbschaftsteuerreform? [Approximate market valuation of businesses after the inheritence tax reform]. Zeitschrift für betriebswirtschaftliche Forschung Sonderheft 63(11):45–83CrossRef

Næss-Schmidt H, Pedersen T, Harhoff F, Winiarczyk M, Jervelund C (2011) Study on inheritance taxes in EU member states and possible mechanisms to resolve problems of double inheritance taxation in the EU. Copenhagen Economics

Pickety T, Saez E (2007) How progressive is the U.S. federal tax system? A historical and international perspective. J Econ Perspect 21(1):3–24CrossRef

Potrafke N, Kauder B, Reischmann M, Riem M, Schinke C (2014) Die Auswirkungen der Erbschaftsteuer auf Familienunternehmen [The impact of the inheritance tax on family businesses]. Stiftung Familienunternehmen

Simons D, Voeller D, Corsten M (2012) Erbschaftsteuerliche Verschonungsregeln für das Betriebsvermögen? Ein theoretischer Ansatz zur Steuerplanung [Inheritance tax credits for business property - a theoretical approach to fiscal planning]. Zeitschrift für betriebswirtschaftliche Forschung 64(2):2–36CrossRef

The White House (ed) (2012) The president’s framework for business tax reform. Joint report by the White House and the Department of the Treasury

Zifonun N, Schöffel R (2004) Neue Erbschaft- und Schenkungssteuerstatistik 2002 [The new Inheritance and Gift Tax Statistic 2002]. Wirtschaft und Statistik 9:1028–1035

Titel: Who benefits from the preferential treatment of business property under the German inheritance tax?
verfasst von: Benedikt Franke
Dirk Simons
Dennis Voeller
Publikationsdatum: 24.02.2016
Verlag: Springer Berlin Heidelberg
Erschienen in: Journal of Business Economics / Ausgabe 9/2016
Print ISSN: 0044-2372
Elektronische ISSN: 1861-8928
DOI: https://doi.org/10.1007/s11573-016-0807-7

Springer Professional

Abstract

Bitte loggen Sie sich ein, um Zugang zu Ihrer Lizenz zu erhalten.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Journal of Business Economics

Springer Professional "Wirtschaft"

Premium Partner