Inheritance tax - Restricted use of the 90% non-operating assets test
In response to a ruling by the Federal Fiscal court (Bundesfinanzhof, BFH), the fiscal administration has made it possible, under certain circumstances, to offset operating liabilities with financial resources for the 90% non-operating assets test for inheritance tax purposes.
According to Section 13b(2) sentence 2 of the Inheritance Tax Act (Erbschaftsteuergesetz, ErbStG) inheritance tax concessions for business assets will not apply if 90% of these are non-operating assets. This rule is known as the 90% test. Recently however, the BFH in its ruling of 13.9.2023 (case reference: II R 49/21) decided that trading companies may reduce their financial resources by deducting operating liabilities if these form part of the tax-privileged assets. This applies if the main purpose of the company is a commercial activity pursuant to Section 15(1) sentence 1 of the German Income Tax Act.
The highest tax authorities of the Länder (Federal States) have now decided via an administrative decree of 19.6.2024 to apply the BFH ruling to all cases that are still open. This will be the case for both for gifts as well as for legacies and will affect all legal forms of assets that qualify for preferential tax treatment. The decree can only be applied if the primary purpose of the business assets is to generate income from agriculture and forestry, trade or business, and self-employment (Gewinneinkünfte).
The tax authorities have also clarified the restrictions. This includes the restriction that recent financial resources may not be deducted and that a basic amount of 15% of the value of the business assets may not be deducted from the financial resources (Section 13b(4) no. 5 ErbStG). Furthermore, it is pointed out that it will still be possible to apply Section 42 of the German Fiscal Code in order to prevent abusive structures. If a company tries to obtain tax concessions through inadmissible structures, then the offsetting of liabilities and financial resources would be refused.