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German upper house backs inheritance tax reform

[BERLIN] The Bundesrat, Germany's upper house of parliament, on Friday approved reforms that will restrict tax breaks for people who inherit the medium-sized, often family-owned, firms that form the backbone of the country's economy.

The reform, agreed by governing parties last month via committees representing both parliamentary houses, will go into effect retroactively from July 1, 2016, though a prominent opposition lawmaker said on Friday it could still be subject to a legal challenge.

Around 90 per cent of German companies are family-run and they employ around half of the country's working population.

Under the new law, those who inherit them should in future still be able to get a 100-per cent tax break, but only if they keep the firms operating for seven years and maintain employment levels.

The Left party and the pro-environment Greens had opposed the reforms in the lower house, the Bundestag.

Christian Goerke, finance minister of the state of Brandenburg and a member of the Left party, said he expected the inheritance tax system to be challenged in the constitutional court in response to the new law.

The German Chamber of Tax Advisers has also raised questions about its constitutionality.

The reforms now being enacted were launched after the court ruled in 2014 that the previous system breached the principle of equal tax treatment, and demanded tighter restrictions for firms.

In 2015, revenues from inheritance tax hit a record 6.3 billion euros (S$9.67 billion), up 15.4 per cent from the previous year, data from the Federal Statistics Office showed.