On 17 December 2014, the Federal Constitutional Court held that the exemption of business assets from inheritance and gift tax is unconstitutional, as it is too broad-based. The Constitutional Court requested that the German legislator amend the rules by 30 June 2016. Finally, after lengthy discussions, the Parliament (Bundestag) and the Upper Chamber (Bundesrat – consisting of delegated members of the provinces) reached a compromise on the new rules applying to the transfer of business assets under the Inheritance and Gift Tax Act.

On 14 October 2016, the Upper Chamber approved the new legislation which will enter into force with retroactive effect from 1 July 2016. According to the new rules, the transfer of business assets from one person to another person within a ten year period may be fully exempt from inheritance and gift tax, up to an amount of €26 million. However, even if the donation exceeds €26 million, certain exemptions are potentially available. Under the new rules, there will be no exemption for assets which do not qualify as business assets but which will be transferred together with the business assets to the donee, such as real estate property which is rented out to third parties. Finally, there are a couple of other changes which increase the complexity of the existing rules and which need to be considered and analysed in connection with the succession planning.

Our recommendation

Existing structures and contracts which have been implemented on the basis of the former inheritance and gift tax rules should be checked in light of the new law. Since the new rules also provide for exemptions, there are still various options available to reduce the inheritance and gift tax due.

Directive on the VAT treatment of vouchers

The Council of the European Union adopted a Directive on the VAT treatment of vouchers on 27 June 2016. The new provisions need to be implemented by the Member States by 31 December 2018. The new rules will apply to vouchers issued on or after 1 January 2019.

For the purposes of the new Directive, a voucher is an instrument that has to be accepted as consideration or part consideration for a supply of goods or services. The voucher must evidence: (i) the goods or services to be supplied; or (ii) the identities of their potential suppliers. The Directive distinguishes between two types of vouchers: (i) single purpose vouchers; and (ii) multi purpose vouchers. A single purpose voucher means a voucher where the place of supply of the underlying goods or services and the VAT payable are known at the time that the voucher is issued. In the case of a multi purpose voucher, the relevant supply of goods or service cannot be determined at the time of issue. In the case of a single purpose voucher, VAT will be triggered on the sale of the voucher to the customer. The sale of the goods or services is not deemed to be a separate taxable transaction. However, if the performing person and the voucher issuer are not the same, the performing person will be treated as if it had supplied the goods or services to the issuer. In the case of a multi purpose voucher, neither the issue nor the transfer of the voucher is subject to VAT. The taxable transaction is solely deemed to have been carried out by the person who actually supplies the goods or services and accepts the voucher as consideration or part consideration.

Our recommendation

German tax advice should be sought prior to the implementation of voucher concepts. We recommend checking whether contracts need to be adjusted as a result of the new rules and whether any other compliance measures need to be taken.