FG Münster: No pardon in the case of an erroneously applied for exemption option

Tax Court confirms hard line of the administration: No regular exemption in case of requested exemption option, even if this was done by mistake and cannot be granted due to lack of requirements. The appeal is pending.

The Inheritance Tax Act provides for considerable benefits for companies. Under conditions described in more detail in the Act, the transfer of business assets is granted 85% exemption (Regelverschonung) and under more stringent conditions even 100% exemption (Optionsverschonung).

The prerequisite for 100% business asset relief is an irrevocable application. In its ruling of July 26, 2022 (II R 25/29), the Federal Fiscal Court (Bundesfinanzhof, BFH) decided that the wording of Sec. 13b (10) ErbStG is clear in this respect. Therefore, if the requirements for an option exemption are not met, the standard exemption cannot be applied. Consequently, the granting of the standard exemption (85% exemption) requires that no declaration is submitted for the optional full exemption. Thus, every taxpayer who submits an application for an optional exemption must be aware that he will not receive any exemption of the business assets, not even an 85% exemption, if the application fails.

In a noteworthy ruling, the Münster Fiscal Court of October 27, 2002, AZ: 3 K 3624/20, followed the BFH's case law even in a case in which the donee erroneously assumed that only part of the transferred assets were business assets and, as a result of the error, the conditions required for granting the option relief were not met from the outset. This ruling is now before the BFH for decision and it can be eagerly awaited whether it will also rule out a return to the standard exemption in cases of error.

For practical purposes, however, it is important to note that the question of a statutory or optional exemption requires an extremely complex preliminary examination and that it is therefore imperative to obtain professional support before applying for an optional exemption.