Who Benefits from the Preferential Treatment of Business Property under the German Inheritance Tax?

Journal of Business Economics, 86, p. 997-1041

Posted: 9 Dec 2014 Last revised: 10 Nov 2016

See all articles by Benedikt Franke

Benedikt Franke

SKEMA Business School

Dirk Simons

University of Mannheim - Accounting and Taxation

Dennis Voeller

University of Mannheim - Accounting and Taxation

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Date Written: December 1, 2016

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.

Keywords: Business transfers, Inheritance tax, Preferential tax treatment, Simulation

JEL Classification: C15, H30, K34

Suggested Citation

Franke, Benedikt and Simons, Dirk and Voeller, Dennis, Who Benefits from the Preferential Treatment of Business Property under the German Inheritance Tax? (December 1, 2016). Journal of Business Economics, 86, p. 997-1041, Available at SSRN: https://ssrn.com/abstract=2535706 or http://dx.doi.org/10.2139/ssrn.2535706

Benedikt Franke

SKEMA Business School ( email )

Lille
France

Dirk Simons

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

Dennis Voeller (Contact Author)

University of Mannheim - Accounting and Taxation ( email )

University of Mannheim
Mannheim, 68131
Germany
+49 621 181 1638 (Phone)
+49 621 181 1665 (Fax)

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