Many investors can now breathe a sigh of relief. Namely those who have entered into forward transactions. These include, for example, transactions with options, contracts for differences (CFDs), futures and swaps.
The Annual Tax Act 2024 once again allows losses from forward transactions to be offset in full against other capital income
The Federal Council has just approved the Annual Tax Act 2024. This removes the restriction on offsetting losses from such forward transactions that has been in place since 2021 - with retroactive effect until 2021.
The controversial regulation had meant that for investors with a large number of individual forward transaction gains and losses, all accumulated losses could only be offset up to an amount of EUR 20,000 per year and only against forward transaction gains (including option writer premiums), i.e. not against other price gains, for example from shares or funds. This restriction no longer applies. Losses from forward transactions can now again be offset in full against all investment income from all asset classes.
The restriction often resulted in a loss, sometimes even insolvency.
An example shows that the previous restriction was poorly thought out and constitutionally dubious: An investor traded intensively in futures in 2021 and made a net profit of EUR 20,000, consisting of EUR 1,000,000 in losses and EUR 1,020,000 in gains. He can only offset EUR 20,000 of the losses and must therefore pay tax on EUR 1,000,000 at the flat-rate withholding tax rate of 25 percent plus solidarity surcharge, i.e. a total of 26.375 percent. He therefore owed tax of EUR 263,750, although he only earned EUR 20,000. In return, he was able to carry forward the remaining losses of EUR 980,000 and offset up to EUR 20,000 per year against new forward transaction profits and option writer premiums, provided he had such profits in this amount every year (and no new losses) and would live that long (at least another 49 years).
Thus, for many small and large investors, the regulation led to taxation that was completely decoupled from taxable income and in many cases even led to taxation of the minimum subsistence level and de facto insolvency.
Accordingly, the Federal Fiscal Court issued a ruling in interim legal protection proceedings that the restriction on loss offsetting for forward transactions was unconstitutional. Before it could submit the case to the Federal Constitutional Court (appeal proceedings on a ruling by the Baden-Württemberg Fiscal Court dated April 29, 2024 with file number VIII R 11/24), the legislator itself has now removed the disputed regulation from the ring.
Andreas Patzner
Partner, Financial Services, Tax Asset Management
KPMG AG Wirtschaftsprüfungsgesellschaft