Comparison of the taxation of inheritance in Germany and Switzerland

With this academic research, I want to analyse the two systems of the taxation of inheritance in Germany and Switzerland. The main research questions are: • What are the differences between the tax systems of the two countries? • Is it possible to develop tax-planning approaches? • Is there a “better” system? The main aim of this comparison is to evaluate the differences and similarities of the taxation of inheritance under the influence of each tax system and to develop tax-planning approaches. My motivation for this paper is to deepen my knowledge about a tax system that I have not yet learned anything about, but which will take a big part in my future personal life and work environment. I want to use this paper to set up my first specific experience with the tax system of Switzerland. As I plan on pursuing my academic and professional career in Switzerland, it is a logical decision to expand my background with this opportunity. I want to give a short overview on the tax systems of the taxation of inheritance, and how the systems in each country developed over time as well as how the taxation of inheritance is compared or related to other types of taxes. Figure 1: Division of Switzerland’s tax revenue among the different types of tax (statista.de, 2020) 5 In Switzerland, the taxation of inheritance was established quite late. The country first started to levy the tax in 1798 (Dr. Max Troll et al., 2020). In Switzerland, the cantons have the tax jurisdiction, and they are the ones that can levy the tax on inheritances (Bundesverfassung Der Schweizerischen Eidgenossenschaft, 2000) (Art. 3). The tax is identified as an indirect tax, and for this reason, the federal government is not allowed to establish harmonising legislation (Bundesverfassung Der Schweizerischen Eidgenossenschaft, 2000). Therefore, 26 different cantonal tax administrations and legal provisions are in order (Dr. Rembert Süß et al., 2020). At the time of Helveticism (1798-1803), Switzerland had a uniform tax system, although some of it was only on paper and never fully applied. Since the collapse of Helveticism and the return to the confederation of states, with the simultaneous regaining of the tax autonomy of the cantons, their tax systems developed quite independently. It led to a great diversity in the structure of the tax systems and the design of the individual taxes. While some cantons returned to the indirect taxes of the period before the French Revolution, mainly excise duties, others retained the taxes of the Helvetic system that suited them, such as the wealth tax. When the state was founded in 1848, this tax code was fundamentally changed. Customs sovereignty was transferred in full to the Federal Government, and the cantons were forced to tap their sources of taxation regarding assets and income. Direct taxes gained a dominant position in the cantonal tax systems (Eidgenössische Steuerverwaltung Direktionsstab & Dokumentation und Steuerinformation, 2019). Switzerland was long considered the tax haven par excellence. However, this has less to do with the low tax rates than with the banking secrecy. The level of taxation for ordinary citizens and to some extent also for companies is comparable to German levels. The extents depend on the tax rates of each canton (Dr. Ulf-Christian Dißars, 2020). The taxation of inheritance is one of the oldest known forms of tax payments (Hermann-Ulrich Viskorf et al., 2017). The first evidence of taxation of inheritance dates back to 100 B.C. to the old Egypt and the old Roman Republic (Dr. Max Troll et al., 2020). During the medieval period, the tax did not play a significant role because of the restrictions in the general inheritance law. Only direct male descendants were allowed to inherit property. In the case of no male descendants, the property was given to the municipality (Dr. Max Troll et al., 2020). As the general law of inheritance changed, the tax changed as well. More countries started to levy the tax and introduced the taxation of inheritance. The first countries to levy taxation of inheritance in Germany were Braunschweig, Hamburg and Luneburg during the 17th century (Dr. Max Troll et al., 2020). 6 The legal status of the taxation in Germany was fragmented, and there was no unity possible up until the implementation of the German Civil Code. In 1906 the German Empire taxation of inheritance law was inaugurated, and the taxation unified (Hermann-Ulrich Viskorf et al., 2017). The law was mainly based on the Prussian taxation of inheritance law from 1873 (Dr. Max Troll et al., 2020). The inheritance tax was levied as hereditary succession tax. Included was the acquisition in the result of death within paragraphs 1 to 4. Furthermore, inter-vivos gifts were included in paragraphs 55 and 56 (Dr. Max Troll et al., 2020). A similarity to the nowadays § 13 from the inheritance tax law, was tax exemption. Up until the “Große Steuerreform” in 1974 the taxation changed a lot and the tax rates and tax-free amounts were adjusted frequently. In 1974 the complete taxation was reformed, and in the following years, only slight adjustments took place (Hermann-Ulrich Viskorf et al., 2017). With the German reunification, the need for a new law was inevitable. With the 01.01.1991 a new unified legal territory was built, and it also applied for the taxation of inheritance. Since the unification, the law has been argued to be legally compliant, but with extensive tax reforms in 2008, 2011 and 2016 the laws have been revised (Hermann-Ulrich Viskorf et al., 2017). The taxation of inheritance is connected to other taxations, and the different types of taxation co-exist. However, the taxation of inheritance covers non-paid increases in assets, which means that the same circumstances cannot be subject to income tax and inheritance tax at the same time (Hermann-Ulrich Viskorf et al., 2017). In Germany, the taxation of inheritance is on the 16th step of the tax spiral in the year 2018. The tax made up about 6.020 million Euros of the total 772.090 million Euros tax revenue in Germany. (Peter Zeitschel, 2020