The transfer of assets to future generations in general, and corporate succession in particular, touches on very different areas of law. This makes the details of handling such matters so complicated. It especially involves income tax and inheritance/gift tax law, not to mention company, family and inheritance law.
The last reform of inheritance tax law in 2016 served to implement the requirements laid down by the Federal Constitutional Court. This has significantly increased the complexity of tax concessions for business assets and shares in corporations. Consequently, now more than ever, a company’s business succession requires thorough planning in order to avoid unpleasant surprises.
The starting point for planning asset or corporate succession is the wishes of the transferring party in terms of who is to receive which assets. On this basis, various aspects have to be taken into consideration:
- It is important to check whether renunciations of inheritance/compulsory portion or contracts of inheritance have already been concluded with all of the parties concerned, and whether it would still make sense to conclude such contracts or a corresponding renunciation.
- In terms of the assets to be transferred, it is important to ensure as far as possible that any existing hidden reserves are not revealed for income tax purposes.
- The planned transfer of assets must be consistent with any obligations of the transferring party under company law.
- The process as a whole should be optimised from the point of view of inheritance and gift tax law. As regards business assets, the interaction between income tax and inheritance tax can be very complex if the transferring party wishes to retain cash inflows from the assets to be transferred.
- In the case of business assets and corporations, the company assets must be optimised with regard to the tax concession regulations (reduction of administrative assets if necessary).
- As for the remaining assets of the transferring party, it is wise to plan at an early stage concerning whom the assets are to be transferred to in order to ensure multiple use of any allowances.