Sigrid Hemels, Professor of Tax Law at Erasmus School of Law, was invited to the programme Scheefgroei. The episode in which she was featured discussed pensions and the uneven distribution of pensions amongst the Dutch population. Hemels spoke about two subjects: pensions and the company succession system, which applies when children take over their parents’ business.
People are quickly distraught when their pensions are at stake. Hemels noticed this by the number of comments on her column in Het Financieele Dagblad, in which she argued in favor of taxing the OAW. This way, it would not only be paid for by the working population but also by the retirees: “you meddle with their income, so I get that.”
The same goes for the discussion about the company succession system. This system offers a sizable exemption from the gift and inheritance tax when children take over and continue the family business. “If you inherit five per cent or more of the shares of a company, which is quite a small amount, the first million euros of value are exempted from tax. The surplus is exempted from tax for 83 per cent. From the Dutch Tax Authorities' statistics, it was found that a group of around three hundred people inherit over five million (on average 19 million) and only pay 1,1 per cent tax”, according to Hemels. She then wonders whether we have not taken this too far: “Why should someone who inherits shares from a company in which family members hold shares pay little to no inheritance tax, and should someone who inherits other forms of capital pay 10 to 20 percent in taxes? A company is not devalued because family members are shareholders.”
Another guest present at the show Scheefgroei suggested that taxation in the case of family businesses inheritance can also have undesired effects. When children choose not to continue the business, the way is paved for foreign investors, after which the question was posed whether this would necessarily be detrimental to the company and employment in the Netherlands.
Without the current business succession system, operational management does not seem to be threatened. “Research by the Dutch Tax Authority shows that 75 per cent of the companies that use the business succession system generate enough fluid assets to be able to pay taxes at the moment of inheritance. That indeed means that some of the money has to leave the family business”, explains Hemels. For companies that are unable to pay the taxes, other arrangements can be made. The numbers show that the heirs of family businesses can carry a more equal treatment as other heirs. This would be more fitting when other forms of capital inheritance are considered.
In the period between the recording and the broadcasting of the TV programme, the following has been included in the coalition agreement: “The continuity of family businesses is being supported by making business succession simpler and fairer. At the same time, inequal use of the system is being counteracted.”
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