By order of 21 November 2013 (Az. II B 46/13), the BFH has changed its previous case law on the current Inheritance Tax Act and ruled that the enforcement of an inheritance tax assessment must be suspended on account of the pending judicial review proceedings before the Federal Constitutional Court, provided that a "legitimate interest" exists. Case: The divorced wife of a man who died in September 2011 was to receive a monthly pension of EUR 2,700 for life under his legacy. The inheritance tax payable on this was assessed by notice at EUR 71,000, which she also paid at the end of 2012. However, the tax office and the tax court refused to suspend enforcement of the inheritance tax assessment, meaning they were not willing to provisionally refund the inheritance tax to the applicant pending the proceedings before the BVerfG. The BFH, however, suspended enforcement of the inheritance tax assessment by order of 21 November 2013 until the Federal Constitutional Court rules in proceedings 1 BvL 21/12. The decisive factor was that the BFH had already submitted the provision deemed unconstitutional to the Federal Constitutional Court for review of its constitutionality, and in this case there was a legitimate interest in being granted interim legal protection. A legitimate interest exists at least whenever the taxpayer, lacking liquid assets from the inheritance such as cash, must use their own assets to pay the assessed inheritance tax, or sell or encumber acquired assets. If an acquirer is therefore unable to pay the inheritance tax from the acquisition itself, they cannot reasonably be expected to provisionally pay the inheritance tax in view of the pending judicial review proceedings.
Frequently asked questions
Frequently asked questions
When can the enforcement of an inheritance tax assessment be suspended due to constitutional concerns?
Under the BFH decision of 21 November 2013 (II B 46/13), the enforcement of an inheritance tax assessment may be suspended as long as the judicial review proceedings on the constitutionality of the ErbStG are pending before the BVerfG (1 BvL 21/12). The taxpayer must demonstrate a legitimate interest in such suspension. With this ruling, the BFH departed from its previously restrictive case law.
What does the BFH consider a 'legitimate interest' in interim legal protection?
A legitimate interest exists in particular where the recipient cannot pay the assessed inheritance tax from liquid assets received (e.g. cash). If they would instead have to use their own assets or sell or encumber inherited property, provisional payment of the tax cannot reasonably be expected.
What is the significance of the German Federal Constitutional Court proceedings 1 BvL 21/12 for pending inheritance tax assessments?
Since the BFH has referred the provisions of the ErbStG (Inheritance Tax Act), which it considers unconstitutional, to the Federal Constitutional Court for review, heirs generally have the option of obtaining interim legal protection against inheritance tax assessments. Pending the Federal Constitutional Court's decision, enforcement may be suspended or lifted where there is a legitimate interest.
Can inheritance tax already paid be provisionally refunded due to the constitutional proceedings?
Yes, in the case decided, the BFH allowed the suspension of enforcement even for inheritance tax already paid, making a provisional refund possible. Tax offices and tax courts had initially rejected this, but the BFH clarified that, where a legitimate interest exists, a suspension of enforcement may also be considered.
Does provisional legal protection automatically apply to all inheritance tax assessments?
No, provisional legal protection is not granted automatically. The taxpayer must file a corresponding application and demonstrate a legitimate interest, for example that the inheritance tax cannot be paid from the estate itself. Without such a particular hardship situation, the payment obligation remains in force.