Inheritance Tax Act is Invalid

After five years, the BVerfG (re BvR 421/05 of November 7, 2006 published on January 31, 2007) came to a decision that the present estate tax act is partly unconstitutional.


So what happened? In the year 2002, the BFH put the case on hold to call upon the Federal Constitutional Court to decide upon this constitutional issue. The question was whether the valuation of real estates and company’s assets as well as the unilateral preferential treatment with an exempt sum and a procentural deduction pursuant to §13a ErbStG were constitutional.

The Federal Constitutional Court agreed with the Federal Tax Court as it also sees the Principle of Equality violated. The judgment centers on questions of value assessment or valuation, whereby the value of company’s assets are at issue. The main aspects of the Federal Constitution Court’s judgment are:

  • The approach with balance-sheet values for the valuation of company assets structurally hinders an approach to market value. This does not purposefully lead to a fair and equitable tax relief but more to a random and arbitrary valuation. This especially relieves the tax burden of high yield enterprises.


  • The valuation of real estate also leads to values that are anywhere between 20% to 100% of real worth. Thus fair and equitable taxation does not result. The Federal Constitutional Court left the question open whether a preferential treatment under mitigating circumstances is constitutional. But the court clearly stated that there could be grounds for a preferential treatment but not by using the valuation by amount.
  • The balance-sheet valuation of stock shares in corporations also leads to structurally incorrect values.



The judgment effects no immediate changes to the Estate and Gift Tax Act. All tax returns for estate tax have been given preliminarily assessment since 2001. Since the Federal Constitutional Court has given a long grace period (until December 31, 2008) to adopt new provisions in the law in conformity with the changes required. Therefore, there is no reason to alter your portfolio.

Published on the old CMS: 2007/3/7
Read on the old CMS till November 2008: 136 reads

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