Despite low capital gains or even losses on the sale of fund units, investors should pay comparatively high taxes in certain cases. This was the decision of the Cologne Fiscal Court (FG Köln) in a recently published ruling (15 K 2594/20). The reason lies in the 2018 investment tax reform, according to which a fictitious sale of all fund units held at that time took place on 31 December 2017.
Tax benefits for funds since 2018
Real estate funds, equity funds and mixed equity funds have been tax-privileged since 1 January 2018. This means that the investor only has to pay tax on part of the profit accrued since 1 January 2018 (the technical term is partial exemption procedure). Conversely, as a sort of downside of this, losses can only be partially recognised since 1 January 2018.
This regulation is particularly annoying for investors who previously achieved fully taxable profits with the same fund units until the notional sale on 31 December 2017.
Fictitious profits up to 2017 are offset - taxes may exceed profit
Here is an example: An investor bought equity fund units worth 20,000 euros in 2015. On 31 December 2017, these shares were worth 30,000 euros. In 2023, the investor then sold the fund units, but the value had fallen back to 20,000 euros in the meantime.
The gain of 10,000 euros up to 31 December 2017 is fully taxable, while the loss from 1 January 2018 of 10,000 euros can only be recognised at 70 percent, i.e. 7,000 euros, due to the 30 percent partial exemption. On balance, this results in a taxable profit of 3,000 euros, which is subject to the final withholding tax - even though the investor has not made any profit at all in economic terms.
Andreas Patzner
Partner, Financial Services, Tax Asset Management
KPMG AG Wirtschaftsprüfungsgesellschaft
Unresolved legal situation: In case of strong effects, refer to the revision procedure
However, an appeal against the decision of the Cologne Tax Court has been lodged with the Federal Fiscal Court (VIII R 15/22), so that the legal situation has not been conclusively clarified. In the case of striking effects, investors should enter the investment income in the tax return in deviation from the annual tax certificate of the bank and refer to the appeal proceedings or work towards a provisional assessment at the tax office.
