Transferring family businesses: major differences in taxation

The transfer of business assets to the next generation is one of the most important issues for family businesses in order to ensure the long-term preservation of the business. Apart from the emotional aspects involved in these transfers, tax and legal issues in particular come into play and need to be thoroughly weighed up and analysed.

These issues are further exacerbated by increasing geopolitical tensions, the threat of recession, the looming consequences of climate change and technological developments from which new business models and methods are emerging. 

In addition, there is greater internationalisation and mobility of future generations. What does it mean for the transfer of business and private assets if the daughter wants to move her centre of life to Singapore to set up a subsidiary there, or the son works from Spain for six weeks a year?

What should entrepreneurial families focus their attention on in succession planning in view of this mixed situation? KPMG's Global Family Business Tax Monitor 2023 provides remarkable insights and new impulses.

The latest edition of our publication compares the sometimes very different global tax implications of transferring business assets, with information on the changing national and international tax rules of 57 countries worldwide.

The KPMG experts provide a comparative analysis based on two case studies: In one case, the shares in a family business are transferred after the death of the owner (inheritance), in the second case, the transfer takes place during the owner's lifetime by way of a gift. The case studies reveal considerable differences between the tax systems of individual countries in terms of tax concessions and tax exemption schemes. The forms of collection also vary widely.

The report exposes the major tax risks associated with transfers, particularly in an international environment. In addition, you will learn where the most urgent need for action arises with regard to succession, investment and business planning for entrepreneurial families in 2023 and the following years. Interviews with family entrepreneurs, advisors and employees of public institutions worldwide make it clear that it is no longer sufficient for most family businesses to look only at domestic tax regulations.

From the interviews conducted, three trends also emerge that apply to many business families:

1. Branching out: global and mobile
   More and more business families are globally mobile. This includes the geographical diversification of their assets. However, when people and assets are globally distributed, the tax and legal risks usually increase as well. If anything, the pandemic has increased these risks, as governments in many countries look for new potential sources of revenue to offset pandemic-related losses and costs.
   
   
2. Building up: governance and management of family assets
   We observe in many countries that business families are placing an increasing focus on wealth management. Family offices continue to gain in importance in this regard. Especially in the course of a generational change, the heirs often decide against an active role in the management of the company and concentrate more on the control and administration of the assets. Time and again, we also see further changes in this situation, for example expansion into new markets and industries in line with changed values of the next generation.
   
   
3. Giving back: philanthropy, transparency and ESG
   Most business families have always seen themselves as having a special responsibility to society. With the increasing focus on ESG (Environmental, Social, Governance), transparency requirements are also increasing in the area of social engagement. It can be observed that many families are redefining the goals they pursue with their assets. Individual values, sustainability and a long-term planning horizon play a major role here. In addition, business families are actively looking for ways to increase the impact of their social commitment.

The Global Family Business Tax Monitor 2023 is the ninth edition of our publication series. Its scope of analysis has expanded significantly compared to the first edition in 2014, which only covered 23 European countries. If you have any questions, please do not hesitate to contact our experts.