Thursday, December 18, 2014

The "Red Hats" Decision

Yesterday in Germany, came the announcement from the German Supreme Court over an order to the Bundestag.  There's been a case sitting there which concerns taxes, and the rules which determine taxation.  The "Red Hats" (the symbolic uniform of the court) said it wasn't fair or they are giving the Bundestag roughly eighteen months to figure up a new way of handling this taxation issue.

The issue?

Germany has a very high number of family-run business operations.  The number often quoted is 2.7 million which are in some way owned by a family and will pass from one member to another.  Out of a population of eighty-million's a fairly high rate.

Somewhere in the statistical will find somewhere between 150 and 200 of these family-run companies.....make a billion Euro a year.

The German law in place says that stability in jobs....was key to priorities.  So, they made a rule that said as one generation of ownership passed on....the new members were not going to be taxed via an inheritance tax.  The fear was....since a lot of this property is actual business structure, property, or things of a physical form.....people would have to sell off some or all of the property, thus creating a loss of jobs somewhere in the mess.

The "Red Hats" said you have to be fair to tax them.

You can imagine the hostility and frustration with the family-run business operations.  It's the beginning of the end.  Whatever comes out of the Bundestag over the next eighteen months....will be unfair.

The present problem?  It's a divisive point between the CDU and SPD.  Both groups kinda hinted that yesterday evening.  The two parties control the Bundestag and generally have to come to some mutual agreement to keep things progressing.  On this.....they aren't agreeable.

Oddly enough....the SPD has spoken up and said the simple solution is for the family-run operations to settle up with the government by just giving them a percentage of the business.  No one said the number.....but I'd take a guess at five-percent.

You can imagine the government guy standing there and accepting his five-percent ownership.  Some new German government office would be created to audit and control such ownership.  Thirty years would pass, and another owner would pass on.....requiring another five-percent of the organization to move into government hands.

The CDU?   They don't like this idea at all.....but they know what the "Red Hats" have done, will eventually have an effect on employment around the country. Family-run operations will be forced to sell or downsize as each generation moves with new ownership.....meaning job cuts.

My suggestion?  No one says that the owners must retain their German nationality.  The company can stay right there where it is and pay German taxes.....but if I were the old guy running my own company.....I'd go and find a new country like Czech where there's no stupid taxation rules like this.  I'd convince my son or daughter to join up with me and become citizens of a more friendly European country.  When dad passes on.....the business just moves easily to the son or daughter.

This won't rank in the top ten issues for Germany for 2015.....but the implications of what is done will sour a lot of business owners and create a hostile environment for the next generation of owners.  And somewhere in this mess.....more unemployment will loom.

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