Aspects of Inheritance and Gift Taxes in Austria

In March 2007, the Austrian Constitutional Court ruled the inheritance tax to be unconstitutional; a similar ruling is expected soon for the gift tax. The study looks into the economic arguments for a far-reaching reform of the inheritance and gift tax schemes or, alternatively, their abolition and its attendant waiver of a revenue source of considerable future potential. The inheritance tax generates fewer distortions than other taxes and dues, especially those levied on labour. Compared to international schemes, Austrian taxes on assets in general and on inheritances in particular yield little. What's more, most modern tax systems provide for an inheritance tax, even though the trend is towards its abolition or generous exceptions. The Austrian inheritance tax could be made compliant with the constitution without any large-scale changes to the current system of taxing inheritances: it would chiefly require a new regime for assessing land values and constitutional provisions to exempt equity interests the yield of which is subject to a capital gains tax on dividends. Considering that it is necessary to have an adequate database on the (future) stock, structure, development and distribution of property and property transfers in order to achieve a reasonable reform of the inheritance tax, the study also describes the data situation in Austria and its deficits. The concluding overview of the key problems to be considered by any reform also discusses possible feedbacks on other taxes if the inheritance and gift taxes were abolished.