date | theme

25. April 2017 | Use loss carry forward in the GmbH purchase

23. August 2018 | GmbH loss carry forwards: § 8c KStG unconstitutional -> objection & deadline

11. November 2018 | Save the loss carry forwards at the GmbH: the new § 8d KStG helps!

17. February 2019 | Buy loss carryforwards from GmbH: 6 new strategies for the use of losses

07. January 2022 | Loss offsetting on futures contracts (this contribution)

Anyone who wants to trade privately in the futures business sector has had to comply with the new legal provisions on loss offsetting in the Income Tax Act since 01.01.2021. So you can now only offset profits from futures with similar losses. In addition, there is a limitation of the annual losses that can be offset in this way to EUR 20,000. A new BMF letter makes it clear that neither warrants nor knock-out certificates count as futures contracts. However, the Federal Fiscal Court has only recently found that the similar loss offsetting of share transactions is constitutionally questionable. Therefore, it is necessary to wait and see whether the old and new regulations on the offsetting of losses in the case of capital income are valid. Alternatively, it can be useful to establish a vermögensverwaltende GmbH for this purpose. Because the offsetting of losses in the context of a vermögensvermanagementtenden GmbH is still possible.

At the beginning of 2021, income tax law introduced a change in the rules for offsetting losses. Until now, losses from capital transactions could only be generally offset against profits of this kind. But now one also distinguishes what kind of financial instruments this is about. More specifically, this is a distinction between investments in shares (as well as other similar securities) and futures contracts.

Futures contracts have a long tradition. They constitute a trade in which the price of an economic item depends on the time the service is provided. Thus, instead of setting the price according to the conditions on the day of conclusion of the contract, the parties involved enter into a speculative trade. Therefore, a forward contract can lead to both a cheapening and an increase in prices at the time the service is provided. This creates a speculative bubble, which has already caused extraordinary circumstances in the past. An example of this is the futures trading of tulip bulbs in the Netherlands in the 17th century. century.

Due to this speculative nature, forward contracts still represent a certain risk. This applies to every single futures transaction as well as to the global economy as a whole. Regardless of the magnitude of the speculation, the legislator also sees the connection that an increased risk from futures transactions also has an impact on the taxes of a taxpayer trading in these financial instruments. Therefore, should the increased risk of a forward transaction be equated with the comparatively lower risk of loss in the context of profit making by means of shares and similar securities in tax treatment? Until now, it was only necessary to distinguish whether losses stemmed from the investment of capital assets or from other sources of income. But this has changed since 2021.

Now a distinction should also be made between futures contracts and other capital transactions with regard to loss offsetting in income tax law. For this purpose, the legislature amended § 20 EStG to the effect that an offset is only possible up to an amount of EUR 20,000 per year. Originally, the bill even provided for a limitation to EUR 10,000. They also affect losses incurred in connection with futures contracts. Losses on futures contracts are now intended to offset taxpayers separately from other gains on investments. As a result, there is a clear restriction in the offsetting of losses under the income tax. Although, as already mentioned, there was already a distinction between losses from investments in shares and all other types of capital assets, for example, it was not possible to offset losses from the sale of shares with interest income on bank deposits. However, the further distinction by forward contracts represents a further tightening of the taxation rules.

In 2021, however, the Federal Ministry of Finance (BMF) accompanied this innovation with further additions. They concern the determination of what should be regarded as a futures contract in terms of income tax law. More specifically, option warrants and knock-out certificates are excluded as futures transactions in the sense of income tax-related loss offsetting. The basis for this clarification is a BMF letter published in June 2021. Thus, these two financial instruments can continue to be offset against other capital gains in respect of any losses. Now, you can offset losses from certificates and warrants with profits from shares and futures contracts. Conversely, however, this is excluded.

On the same day that the BMF declared with its letter exactly what is recognized as a futures contract in the context of the offsetting of losses, the Bundesfinanzhof (BFH) ruled in a very similar, albeit more recent matter. This was about the constitutionality of the distinction between losses from share transactions and other investments. And in fact, the judges found that there is no constitutionally justifiable difference in the loss offsetting of these two categories. In other words, losses on shares should be offset against profits from other investments (and vice versa).

Of course, this ruling also casts a shadow over the new regulation to distinguish between futures and other capital income in terms of loss offsetting. But now it remains to be seen whether the Federal Constitutional Court will also follow the judgment of the judges of the BFH. However, one must assume that this decision will only catch our attention in a few years. It also seems quite probable that a further court judgment devoted to this specific aspect is required for the uniform treatment of offsetting losses in futures contracts. However, whether the legislature adapts the currently applicable tax laws in the meantime on the basis of the BFH judgment may also be justified speculation.

Whatever the judges in the last instance, it is certain that our readers will also find a new article on this topic in the future. In doing so, we speculate that we will then inform you of new corrections to these branched rules for loss offsetting. We will keep you informed.