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Certified Tax Advisor, Lawyer, Specialist lawyer for tax law, Partner
Certified Tax Advisor, Manager, National Office Tax & Legal
Senior Consultant, National Office Tax & Legal
Inheritance and gift tax relief for business assets is intended to safeguard business continuity and preserve jobs. As a general rule, it therefore requires the total wages and salaries paid during the statutory payroll sum period to reach a specified minimum payroll sum (payroll sum test). Whether and to what extent this requirement applies depends, among other factors, on the number of employees. In its decision of June 17, 2026 (case no. II R 34/23), the German Federal Fiscal Court (Bundesfinanzhof; BFH) clarifies how part-time employees and an employed shareholder-managing director who died on the transfer date are to be counted for this purpose. Although the decision concerns the former legislation, it is also relevant to succession planning today.
The sole shareholder and employed managing director of a German limited liability company (GmbH) died in July 2012. His shareholding formed part of the business assets of his sole proprietorship and passed to his heirs together with that business. In addition to him, the GmbH employed 18 full-time staff and two part-time cleaners. One cleaner was a student; the other also worked for another employer. The GmbH sought to exclude the deceased managing director from the employee count and to count the two part-time employees, if at all, only on a pro rata basis. This would have kept the employee count at or below the threshold of 20 applicable at the time, so that no payroll sum test would have been required. By contrast, the tax office and the Fiscal Court determined that there were 21 employees.
The BFH confirmed the employee count of 21 and dismissed the appeal on points of law. The relevant circumstances are those existing at the time of taxation, which, in inheritance cases, is the time of death. The concept of an employee must be interpreted by reference to the business: the decisive question is whether a person is integrated into the business and holds a job that, viewed in the abstract, is to be preserved. Their status under social security law is irrelevant.
The employed shareholder-managing director therefore also had to be counted. Although his employment relationship ended upon his death, it remained valid until that moment. The fact that he could no longer personally continue his work afterwards is irrelevant. The tax relief provisions aim to preserve jobs within the business, irrespective of whether a particular person continues to hold them.
Each of the two part-time employees had to be counted as one person. The legislation provides no basis for weighting employees according to their working hours. A headcount gives equal consideration to preserving full-time and part-time jobs and simplifies administration. The BFH rejected pro rata counting by analogy with the German Protection Against Dismissal Act.
However, the BFH expressly disagreed with the lower court on one point. The exception then applicable to remuneration paid to employees who did not work exclusively or predominantly in the business concerned only the calculation of the payroll sum (Section 13a (4) sentence 1, second half-sentence, of the German Inheritance and Gift Tax Act (Erbschaftsteuer- und Schenkungsteuergesetz; ErbStG), as formerly applicable). It did not apply to the employee count. Contrary to the Fiscal Court’s approach, whether the cleaners fell within this exception was therefore irrelevant to the headcount. The BFH thus distinguishes between assessing whether the payroll sum rule applies at all and subsequently calculating the relevant payroll sum.
Notice
The current version of Section 13a (3) ErbStG likewise links the payroll sum requirements to the number of employees. However, the employee-count-based exemption from the payroll sum test now applies only to businesses with no more than five employees (Section 13a (3) sentence 3 no. 2 ErbStG). Graduated minimum payroll sum requirements apply to businesses with more than five but no more than ten employees and to those with more than ten but no more than fifteen employees (Section 13a (3) sentence 4 nos. 1 and 2 ErbStG). Even one additional person who must be counted can therefore be decisive. The principles governing headcounts and the inclusion of employed shareholder-managing directors thus remain relevant, particularly for smaller businesses. However, the BFH’s decision directly concerned only the former legislation.
As regards exceptions to the employee count, however, a distinction must be drawn between the former and current legislation: Section 13a (3) sentence 7, second half-sentence, ErbStG expressly excludes the employee groups listed there from the employee count as well. These include, in particular, trainees and seasonal workers under the first half-sentence, nos. 2 and 5 respectively. The relevant circumstances are those existing when the tax liability arises. The former remuneration exception examined by the BFH contained no corresponding link between employee counts and payroll sums. Its statement on the separation of employee counting from payroll sum calculation therefore cannot be applied without qualification to the current legislation.
For succession planning, it is therefore advisable to prepare an overview of employees as at the relevant date, including employed shareholder-managing directors and part-time staff. The statutory exceptions should first be reviewed and documented transparently; part-time work or marginal employment alone justifies neither exclusion nor pro rata counting. This provides the basis for determining the applicable employee bracket and the minimum payroll sum that must be met.
Where the payroll sum rule applies, compliance should be monitored on an ongoing basis throughout the statutory payroll sum period.