Business Assets in Inheritance Tax: What Are the Arguments for Exemptions—and Against Them?

In an article for ifo Schnelldienst, Philipp Dörrenberg, Professor of Business Administration and Taxation at the University of Mannheim, and Dominika Langenmayr, Professor of Economics at the Catholic University of Eichstätt-Ingolstadt, explore the main arguments for and against existing tax breaks and emphasize the economic trade-offs involved.

Starting point: a highly favored system

The starting point is the current system in Germany, where business assets are mainly tax-privileged under specific conditions. The authors demonstrate that especially large asset transfers benefit from these regulations.

At the same time, they discuss the main arguments in favor of these exemptions: tax advantages can help ensure the continuation of businesses, secure jobs, and encourage investment.

Conflicts of interest and criticism

However, there are compelling counterarguments. Empirical studies indicate that existing regulations distort business decisions, such as encouraging the transfer of businesses within families, even when external successors could be more effective.

Furthermore, the tax advantages promote strategic behavior, such as deliberately advancing gifts and restructuring companies to take advantage of tax reliefs. According to the authors, these effects cause inefficiencies and question the fairness of the system.

Reform considerations

Against this background, Dörrenberg and Langenmayr explore potential reform options. They argue that a system without special exemptions for business assets could be feasible if it is paired with:

• A uniform, lower tax rate
• More generous and flexible deferral provisions 

The goal is to create a simpler, more transparent, and less distortive tax system that simultaneously mitigates negative effects like decreased investment.

Further readings

• Those who wish to delve deeper into the analysis by Dörrenberg and Langenmayr can read the full article directly in the ifo Schnelldienst (in German).
• This article is part of a broader economic policy discussion on inheritance tax reform and provides in-depth insights into current research findings (in German).