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German tax breaks for family-run firms unconstitutional

Karlsruhe - Germany's constitutional court on Wednesday ruled that inheritance tax breaks for family-run businesses were unconstitutional, a decision critics says threatens thousands of jobs in a sector that forms a major part of the German economy.

The court gave lawmakers until the end of June 2016 to come up with new tax regulations. Current rules will continue to apply until those are in place.

The German Association for small- and medium-sized businesses (BVMW) says the tax privileges are necessary to protect the Mittelstand, the 3.3 million mid-sized companies that create some 70% of the jobs.

"The upper house stressed in its decision, that protecting family businesses and jobs constitute legitimate reasons to partially or fully exempt businesses from tax," court vice president Ferdinand Kirchhof said, referring to the rules set by the German parliament.

Opponents say the tax arrangements cost the government billions of euros.

In 2012, inheritance taxes collected by the government amounted to €4.3bn, while tax exemptions awarded to companies stood at some €40bn.

Under current rules, individuals who inherit a family company are partially or totally exempt from estate tax if they keep running the business for several years, preserve jobs, and most of the assets are invested in production. Businesses that employ up to 20 people had more favourable exemptions.

The BVMW says on its website that small- and medium-sized companies make up more than 99% of all businesses in Germany paying sales tax, provide 80% of the job-training opportunities available, and develop 75% of all patents and innovations.

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