Tax-privileged Assets - Pool Agreements Enable Relief from Inheritance Tax

Articles 13a and 13b of the German Inheritance Tax Act (Erbschaftssteuergesetz "ErbStG") provide that so-called preferential assets (in particular business assets) are - under certain conditions - exempt from inheritance and gift tax. Reason for this is that in the event of a generation change the continuation of a business should not be endangered by an oppressive tax burden.

Shares in corporations only fall under this preferential treatment if the deceased or donor him-/herself either held a stake of more than 25% in the corporation (minimum participation quota) or there is a pool agreement with other shareholders who together fulfil this minimum participation quota. The pool agreement must contain restrictions on the disposal of the shares of the pool members as well as a voting right commitment, i.e. the pool members must commit themselves to always cast a block vote in the shareholders' meeting.

The restriction on the disposal of shares can also be contained in the articles of association or be regulated by a separate agreement. The Federal Finance Court (Bundesfinanzhof, BFH, judgment of February 20, 2019 - Case No. II R 25/16) decided that no special form is required for the voting rights commitment and that even an oral agreement to cast block votes is sufficient.

However, in order to render the pool agreement legally sound, a written agreement should be reached. The same must be proven to the tax authorities. If beyond the abovementioned minimum requirements regulations (e.g. for share transfers) are to be made in the pool agreement, a notarization (“Beurkundung”) may even be necessary.