"The middle class is threatened with back tax payments at a dangerous level"

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The VDMA is calling for a reform of the wage sum rule. The negotiations on the Annual Tax Act would be the appropriate framework for this.

In the negotiations on the Annual Tax Act, an urgently needed modification of the inheritance and gift tax is obviously being ignored: the adjustment of the wage sum rule. Dr. Ralph Wiechers, member of the VDMA Executive Board and head of the association's tax department, explains:

"The corporate structure in Germany, especially in the mechanical and plant engineering sector, is strongly influenced by family-owned medium-sized companies. Those companies might come under pressure, that have had an inheritance or gift case in recent years and that are now forced by the crisis to apply for short-time work compensation or to reduce staff. This is because they run the risk of losing the exemption from inheritance and gift tax on business assets. The consequence: back tax payments, some of which are considerable, endangering the future of the company. The reason for this is the so-called "wage sum regulation" in the inheritance tax law. It stipulates that after a transfer of the company, for example in the case of generational succession, a minimum wage sum may not be undercut.

In normal economic times this regulation may have its political justification. In a widespread economic crisis, such as the one we are currently experiencing as a result of the Covid 19 pandemic, it may simply threaten the existence of family businesses with transfers of business assets already implemented.

It is all the more incomprehensible that considerations on the reform and correction of the wage sum regulation have not yet found their way into the Annual Tax Act. This is where the courage is urgently needed for at least a selective reform of the law. The regulation could be suspended for the crisis years or generally expanded by a correction factor in the form of a sector index. This would avoid undue hardship in taxation.