Losses can be fully offset against profits
As the year comes to a close, there is good news for investors: Losses from futures transactions can once again be fully offset. The controversial tax regulation that limited losses from highly speculative futures transactions to be offset only against gains from similar transactions, and only up to €20,000 per year, has been abolished.
This change comes following the Federal Council’s approval of the 2024 Annual Tax Act on November 22. For investors and traders, this means losses from futures transactions can now be fully offset against profits from other capital investments, according to MTR Legal Rechtsanwälte, which advises on tax law.
Offset Restriction on Futures Losses
Since 2021, strict offset restrictions have applied to futures transactions under Section 20 (6) of the German Income Tax Act (EStG). Losses from futures transactions could only be offset against gains from similar transactions and were capped at a maximum of €20,000 annually. Losses exceeding this limit could only be carried forward to subsequent years, and again only up to €20,000 per year.
This offset restriction applied not only to highly speculative transactions like CFDs or futures but also to worthless stocks or shares in companies. For many investors, these limitations posed a significant financial burden. With the repeal of the restriction, losses can now be fully offset against profits from other capital investments.
Constitutional Concerns Raised by the Federal Fiscal Court
The offset restriction had been legally contentious since its introduction. Most recently, in a decision dated June 7, 2024, the Federal Fiscal Court (BFH) raised concerns about the constitutionality of the regulation, suggesting it might violate the principle of equal treatment (Case No.: VIII B 113/23).
In the underlying case, the plaintiff had traded contracts for difference (CFDs). In their tax return, they reported foreign investment income of approximately €250,000 and losses from futures transactions of around €227,000. The tax office, however, only allowed €20,000 of the losses to offset the gains, leaving the plaintiff with a tax bill of approximately €60,000 for the year in dispute, despite a net profit of only €23,000.
Restriction Violates Equal Treatment Principle
Due to its constitutional concerns, the BFH upheld the lower tax court’s decision to grant the plaintiff’s request for a suspension of enforcement. The BFH emphasized that the offset restriction violated the constitutional principle of equal treatment. Gains and losses were treated unequally: while losses could only be offset up to €20,000 per year, remaining gains were fully taxable. This could result in taxation of gains that were not economically realized, the BFH stated.
The Bundestag and Federal Council appear to have shared the BFH’s concerns and abolished the offset restriction as part of the 2024 Annual Tax Act. Investors may also benefit retroactively from this change, but only in cases that remain open. Investors should check whether their tax assessments are final or whether the tax office has left the possibility for review open. If amendments to tax assessments are still possible, these should be requested from the tax office.
Unrestricted Offset of Losses
Investors can now fully offset their losses from futures transactions against profits from other capital investments, such as interest or dividends. Only the net profit is subject to taxation. If a tax assessment is already final, investors should at least check whether losses and gains above the previous cap of €20,000 can be offset.
It remains uncertain whether the offset restriction on stock losses will also be changed. Currently, losses from stock transactions can only be offset against stock gains. This restriction has also raised constitutional concerns.
MTR Legal Rechtsanwälte provides advice on tax law and disputes with tax authorities.
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