As was reported by today´s Financial Times Deutschland, the Federal Finance Minister and his counterparts in the Federal States plan to increase inheritance tax to be paid on SMEs. From the year 2007 onwards inheritance tax is to be levied on one-man businesses and holdings in business partnerships in the same way as on major enterprises.
This tax increase is a consequence of a modified tax assessment method. So far the amount of the inheritance tax (⇒ Wikipedia) has been determined on the basis of a business partnership´s (⇒ Wikipedia) tax balance sheet book value. (This value, which is also called current value, is the value of an economic good which is calculated according to the tax balance sheet rules and shown on the tax balance sheet). This book value may sometimes be very low, e.g. for real estate, and well below the real value of the economic good in question. According to some experts this fact is an advantage which is one reason for the large quantity of one-man businesses and partnerships in Germany (which account for approx. 85 percent of all German companies).
From the year 2007 onwards these one-man businesses and partnerships will be assessed in accordance with the so-called Stuttgarter method. This method takes into account both the real value as shown on the tax balance sheet as well as the capitalised earnings value. It is exactly these capitalised earnings values which may be the reason for an increased inheritance tax. The profit from the year before the inheritance arose will be taken into consideration threefold, the profit from two years ago twofold and the profit from three years ago will be taken into consideration once. Thus, the Stuttgart method will be to the advantage of companies which make losses, but disadvantageous to those companies which are profitable, since the reference value for the calculation of the inheritance tax will increase and therefore the tax itself. 