Stuttgart Method: Why It Was Abolished and What Applies Today

The Stuttgart method was a tax procedure for valuing unlisted shares in corporations in Germany. It was abolished on 1 January 2009. Anyone who still hears the term today encounters a historical standard or old articles of association that still name it.

What the Stuttgart method was

The procedure served the tax authorities to estimate the fair value of shares in unlisted corporations, above all for inheritance and gift tax. It combined an asset value (substance) with an earnings value into a blended value. The approach was schematic and simple to apply, which explains its spread.

Precisely this schematism was its problem. The procedure generally led to values that were well below the actual market value.

Why it was abolished

By its decision of 7 November 2006, the German Federal Constitutional Court declared the inheritance tax of the time unconstitutional. The core objection was the unequal valuation of different types of assets. Business assets were systematically set too low via the Stuttgart method, while other asset types were valued closer to fair value. This violated the principle of equality.

With the Inheritance Tax Reform Act, the procedure was abolished on 1 January 2009. Since then the goal has been the uniform fair value, which is meant to correspond to the market value.

What applies in Germany today

Its place was taken by the simplified earnings-value method under §§ 199 et seq. of the German Valuation Act. It capitalises the average past annual earnings, adjusted for certain items, with a typified capitalisation factor.

Important is the subordinate character of this procedure. It applies when no recent sale provides a market price and when another customary method does not lead to an obviously more accurate result. The typified factor can, in high-interest phases or for special companies, lead to values that deviate from the economically sensible value.

Germany and Austria, then and now

	Then (DE, until 2008)	Today (DE, from 2009)	Austria
Method	Stuttgart method	simplified earnings-value method	Vienna method
Legal basis	decree/guidelines	§§ 199 et seq. Valuation Act	decree (Vienna method 1996)
Structure	assets + earnings (blended)	capitalised annual earnings	average of asset and earnings value
Status	abolished	in force, subordinate	in use

The Austrian counterpart: the Vienna method

In Austria, with the Vienna method, there is an analogous procedure regulated by decree for estimating the fair value of unlisted shares. The legal basis is the decree "Vienna method 1996". In economic terms it is an averaging method: the value results from the average of asset value and earnings value, with the earnings value derived from the results of the last three financial years.

Unlike the Stuttgart method, the Vienna method is still in use in Austria. If the fair value is required for a tax occasion, the Vienna method can be appropriate and more cost-effective than a full company valuation report.

What this means in practice

For a transaction, none of these procedures is the right benchmark. They determine tax values, not negotiating prices. Anyone wanting to sell orients themselves to earnings value, DCF and market multiples, not to a typified tax value. The connections are covered in the article increasing company value.

A note for context: this article presents the procedures and does not replace tax advice. Questions on inheritance, gift or share valuation belong with a tax adviser or auditor.

Frequently asked questions

Can I still apply the Stuttgart method?

Not for tax purposes in Germany. It was abolished on 1 January 2009. It is relevant only where old articles of association name it as a settlement clause, which can lead to disputes in practice.

What happens to old articles of association that name it?

Such clauses initially remain valid under civil law but can lead to settlements well below fair value. A review and adjustment by a lawyer is advisable.

What applies in Germany today instead of the Stuttgart method?

The simplified earnings-value method under §§ 199 et seq. of the Valuation Act, provided no market price from a recent sale exists and no other customary method is preferable.

Is the Vienna method the same as the Stuttgart method?

They are similar in structure as averaging methods of substance and earnings. But the Vienna method is the Austrian standard and still in use, while the Stuttgart method is abolished in Germany.

Does the simplified earnings-value method yield a realistic sale price?

Not necessarily. It serves tax purposes and works with typified factors. The achievable purchase price can lie well above or below and is determined via market-based methods and negotiation.