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Inheritance/gift tax – Equitable measures in the case of falling short of the minimum aggregate wage level due to the pandemic

The inheritance/gift tax relief for business assets or shares in corporations depends on, among other things, the aggregate wages of the business reaching certain percentage thresholds, within a specific period following the acquisition, that represent the average of the aggregate wages during the last five years prior to the transfer (minimum aggregate wage level). However, at the end of 2021, the administration made clear that it wished to exercise leniency in cases where the failure to achieve the minimum aggregate wage level had been due solely to the pandemic.

The fiscal administration had restored a degree of calm with the identical decree of the federal states of 14.10.2020 (Federal Tax Gazette [Bundessteuerblatt, BStBl.] 2020 I p. 1163) where it stated that the short-time working allowance (although, if necessary only in connection with the list of accounts making up the income statement) would be included in the aggregate wages. Nevertheless, if a business still fails to achieve the minimum aggregate wage level there would be the risk of, potentially, a considerable tax charge. Furthermore, according to the current administrative opinion pursuant to the decrees of 30.12.2021 (BStBl. 2022 I S. 156) the following will apply.

The authorities have made it possible to have a reassessment for equitable reasons or a tax abatement especially insofar as

  • the aggregate wages for the period 1.3.2020 to 30.6.2022 are included when determining the minimum aggregate wage level,
  • a tax charge arises under the German Inheritance Tax Act as a result of failing to achieve the minimum aggregate wage level and
  • this falling short of the minimum aggregate wage level was caused solely by the coronavirus pandemic. 

The above-mentioned sole causation of the pandemic would normally be present if

  • during the period from 1.3.2020 to 30.6.2022 the calculated requisite average aggregate wage level was not achieved,
  • during the above-mentioned period, only the short time working allowance was paid at the company due to the pandemic, and
  • the company is part of a sector that was directly affected by an official order to close on account of the coronavirus pandemic.

This does not mean that in other cases there would be a lack of causality. In fact, the fiscal administration expressly accepts that a failure to achieve the minimum aggregate wage level solely because of the pandemic could also be the case, for example, even if the company itself did not have to close but indeed – as in the case of breweries – its important customers did.

Recommendation: If you, as a legal heir or beneficiary, are faced with the problem of meeting the aggregate wages requirement during the coronavirus times, if necessary, you should ensure that precautionary measures are taken in good time with respect to preparing evidence so as to be able to set out the requirements for a tax reassessment or a tax abatement for objective equitable reasons.

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