Abbreviation | Explanation

para. | paragraph

Art. | Article

Founder

BFH | Bundesfinanzhof

SEGMENT005 | Letter

BVerfG | Federal Constitutional Court

EStG | Income Tax Act

EStR | Income Tax Guidelines

f. | following

ff. | following

gem. | according to

GG | Basic Law

half. | half sentence

Edited | Editor

i.V.m. | in conjunction with

No | Number

S. | sentence

Adrian, Gerrit Hahn, Alexander | Deduction of losses for corporations according to § 8c KStG

StuB 2018, pp. 121 ff.

(quote: Adrian/Hahn, StuB 2018, ... (...).).

Continuation-related loss carry forward pursuant to § 8d

KStG, StuB 2021, pp. 349 ff.

(quote: Adrian/Hahn, StuB 2011, ... (...).).

Anemüller, Christian | Losses on income from capital assets,

EStB 2016, pp. 384 et seq.

Blatt, Sebastian | Loss offset – loss deduction,

NWB Basics 2021, p.

(quote: sheet, NWB Grundlagen 2021, paragraph ...).

Bordewin, Arno

Brandt, Jürgen

(gr.) | Commentary on the Income Tax Act 448. Additional delivery, Heidelberg 2023

(quote: Faller/Schröder, in: Bordewin/Brandt, EStG, § ...)

paragraph ....

(quote: Naujok, in: Bordewin/Brandt, EStG, § ... paragraph ...).

Dorn, Katrin

Becker, Pauline | loss reimbursement according to § 10d EStG taking into account the current legislative changes,

Operation 2022, pp. 1538 ff.

Dörr, Ingmar

Eggert, Andreas | corporate loss deduction,

NWB Basics 2019, p.

(quote: Dörr/Eggert, NWB Grundlagen 2019, paragraph ...).

Ebeling, Jürgen

Geck, Reinhard | Handbook of the community of heirs 62. Additional delivery, Hannover 2023

(quote: Geck, in: Ebeling/Geck, § ... Rn. ...).

Gischer, Horst

Heart, Gischer

Menkhoff, Lukas | Inflation in Germany and the euro area – an overshoot

blick 1st edition, Wiesbaden 2023

Herrmann, Carl

Heuer, Gerhard

Raupach, Arndt

(quote: Hallerbach, in: Herrmann/Heuer/Raupach, EStG),

§ ... Rn. ...

(quote: Herkenroth/Striegel, in: Herrmann/Heuer/Rau-)

pach, EStG, § ... paragraph ....

(quote: Intemann, in: Herrmann/Heuer/Raupach, EStG, §)

... Rn ...

(quote: Musil, in: Herrmann/Heuer/Raupach, EStG, § ...)

paragraph ....

Heuermann, Bernd

Brandis, Peter

(ed.) | commentary on the EStG, KStG, GewStG, AStG, InvStG,

UmwStG and subsidiary laws 168. Additional delivery, Münschen 2023

(quote: Stutzmann, in: Brandis/Heuermann, EStG, § ...)

paragraph ....

Hübschmann, Walter

Hepp, Ernst

Hospitaler, Armin

(quote: Wernsmann, in: Hübschmann/Hepp/Spitaler, AO),

paragraph ....

Chancellor, Hans-Joachim

Kraft, Gerhard

Bäuml, Swen Oliver

Marx, Franz Jürgen

Hechtner, Frank

Geserich, Stephan

(ed.) | Commentary on the Income Tax Act 8th edition, Herne 2023

(quote: Bäuml/Müller, in: Kanzler/Kraft/Bäuml, EStG, §)

... Rn ...

Kessler, Wolfgang

Kröner, Michael

Köhler, Stefan

(ed.) | Corporate Tax Law 3rd edition, Munich 2018

(quote: Altvater, in: Kessler/Kröner/Heuermann, EStG, §)

... Rn ...

Kirchhof, Paul

Mellinghoff, Rudolf

Kube, Hanno

Son, Hartmut

(gr.) | Commentary on the Income Tax Act

Supplementary delivery, Heidelberg 2023

(quote: Desens/Blischke, in: Kirchhof/Söhn/Mellinghof),

EStG, § ... paragraph ....

(quote: Kirchhof, in: Kirchhof/Söhn/Mellinghof, EStG, §)

... Rn ...

Korn, Klaus

Carlé, Dieter

Steel, Rudolf

(quote: Bodden, in: Korn/Carlé/Stahl/strahl, EStG, § ...)

paragraph ...

(quote: Carlé/Bauschatz, in: Korn/Carlé/Steel/strahl),

EStG, § ... paragraph ....

Length, yokes

Sistermann, Christian | Corporate Tax Law 2nd edition, Munich 2018

(quote: Brinkmann, in: Lüdicke/Sistermann, EStG, § ...)

paragraph ....

(quote: Schaumberg, in: Schaumberg, EStG, chapter ...)

paragraph ....

Seer, Roman

Kirchhof, Paul

(quote: Gosch, in: Kirchhof/Seer, EStG, § ... paragraph ...).

(quote: Krumm, in: Kirchhof/Seer, EStG, § ... paragraph ...).

(quote: Seer, in: Kirchhof/Seer, EStG, § ... paragraph ...).

Weber-Grellet, Heinrich Schmidt, Ludwig (gr.) | Commentary on the Income Tax Act 42. Edition, Munich 2023

(quote: Weber–Grellet, in: Schmidt, EStG, § ..., paragraph ...).

Companies make either profits or losses. A profit is the result when positive income and gains outweigh expenses and losses. But how exactly does loss offsetting take place in income tax law and corporate tax law? That is what the following contribution deals with.

List of abbreviations

I. Introduction

High inflation is a major issue in 2022. This increases the prices of services and goods on a broad basis. This results in the loss of the value of a currency.1 The inflation rate in 2022 increased by about 7 percent compared to the previous year. This represents an inflation level that has not existed since the Korean War in the early 1950s.2 It is evident that the high inflation results from the Corona pandemic and the Russian war in Ukraine. These two factors affect macroeconomic supply by disrupting supply chains. 3

Due to inflation, many companies have generated losses, which have led the legislator to make adjustments to the loss reimbursement according to § 10d EStG. The Fourth Corona Tax Assistance Act introduced further changes.4

This housework deals with how the losses incurred by companies can be taken into account in income and corporate tax and to what extent restrictions take place.

At the beginning, I dealt with what constitutes the legal basis for offsetting losses. In the following, I discussed how loss compensation takes place and which restrictions must be observed. Then I discussed the superperiodic loss deduction and also listed restrictions there. Finally, the link to the Corporate Tax Act was derived and its special schemes listed.

II. Loss offsetting

Loss offsetting means that negative and positive income of the same and different types of income can be offset against each other within a tax period. This type of compensation is ex officio and has the background that the performance of the taxpayer is reduced by losses. Thus, loss compensation contributes to the principle of taxation according to personal capacity is respected.5 Differences are generally made between horizontal and vertical loss compensation.6 Intra-periodic loss compensation is to be delimited from the super-periodic loss deduction acc. § 10d EStG, by which income, which was not compensated in the determination of the total amount of income, are taken into account. 7

1st principle of performance

Taxpayers may not be charged more by virtue of the performance principle than they are economically able to pay. Consequently, a level of taxation which restricts the economic activity of the taxable person or leads to its cessation is prohibited. As a consequence, factors that increase and reduce performance must be taken into account in taxation.8 It can also only refer to the ability to pay, which is effectively available. Thus, objects for which a value can be determined but which is not available in money do not provide a basis for economic performance.9 In the case of income from profits, the income is referred to as operating income and the related acquisition expenses as operating expenses acc. § 4 Abs. 4 EStG. Accordingly, this is referred to in the case of surplus income income and advertising costs.10 The performance principle is guaranteed by the objective and subjective net principle, which is enshrined in the Income Tax Act.11

2nd objective net principle

In income tax, net income is taxed. In general, therefore, expenses incurred for generating revenue are deductible as operating expenses or advertising costs. § 2 Abs. 2 EStG therefore defines income as profit or surplus income.12 If income-related expenses were no longer recognised as income tax, it would be revenue tax instead of income tax under financial constitutional law. With the profit or surplus of § 2 sentence 1 EStG, however, not only positive variables must be taken into account for tax purposes.13 The objective net principle also concerns the

Loss compensation according to § 2 para. 3 EStG and the non-periodic loss deduction according to § 10d EStG. With the emergence of § 2 Abs. 2 EStG the legislator has made a basic decision. A non-deductibility of certain expenses requires a justification, as otherwise this leads to unequal treatment acc. Art. 3 para 1 GG leads. The judgment of 30 September 1998 of the BVerfG also declared the exclusion of a certain type of income from loss compensation contrary to the principle of equality in the absence of sufficient justification.14 However, there may be expenses which are professional and

privately arranged, shortened or flat-rate.15

Subjective Net Principle

In contrast to the objective net principle, the subjective net principle also takes into account private expenses when determining the tax base, which represent a necessity for existence according to the German patent document. § 2 Abs. 4 and 5 EStG.16 These are referred to as special expenses (according to § 10 – § 10c EStG), expenses for livelihood security and extraordinary burdens (according to § 33 – § 33b EStG). Since taxable persons cannot freely dispose of the amount of the said expenses but serve the said purpose, the amounts must be exempted from taxation. Article 20, par. 1 of the Basic Law, with which income, which constitutes a subsistence minimum in order to make a decent existence possible, must be exempted from tax. In addition, Art. 6 Abs. 1 GG for families a tax exemption for the subsistence minimum of all family members.18

4. The loss compensation

By the sum of the income according to § 2 para. 3 EStG are set off positive with negative income within the investment year, starting with income of one type of income. This is called horizontal loss compensation. Subsequently, both positive and negative incomes of different types of income are offset, which is called vertical loss offsetting.19 For example, if several businesses are operated by a taxpayer, it meets the following requirements:

several times the fact of an income type. With the said first step, the profits and losses of the commercial enterprises are offset against each other, which represents the total result of the type of income. If the different incomes of a type of income have been combined into a numerical value, the horizontal loss compensation is completed.20 If a loss remains with the types of income, the principle of § 2 para. If the sum of the income includes those which are subject to a more favourable tax rate than the standard tariff, then for this type of income the horizontal loss compensation does not take place first, but the vertical loss compensation in order to preserve the advantage. As an example, the § 34 EStG and its application of a lower tax rate on the sale of a business.22

a Scope of loss compensation

All income derived from income and corporate tax (§ 8 para.) 1 KStG) are covered by the material scope of the loss compensation. For unlimited taxpayers in Germany, this applies to domestic and foreign income. Limited taxpayers can only compensate for losses on domestic income. The personal allocations of income as well as allocations and settlements, which are made up to the total amount of income, result in the personal scope.23

aa Spouse loss compensation

If there is a joint investment of spouses according to § 26b EStG, losses of one can also be compensated with positive income of the other spouse. Since § 26b S. 2 EStG only the aggregation of the income of spouses and § 2 para. 3 EStG does not prescribe any order of loss compensation, the offsetting of the income of spouses is to be carried out in the most favourable manner. Special feature offers losses from commercial animal husbandry and animal breeding acc. § 15 Abs. 4 EStG. These are to be considered separately and can only be offset with income from commercial animal breeding and animal husbandry of the other spouse.24

bb Loss compensation for heirs

According to previous jurisprudence, uncompensated losses of the decedent, which consist of a lack of positive income of that person, could be taken into account in the heir as loss compensation. However, BFH’s case-law has changed.25 Accordingly, losses incurred by the decedent in the case of heirs do not result in consideration of the tax-related nature of the loss compensation. According to the tax administration and the BFH, this also applies to negative income with third-country reference acc. § 2a Abs. 1 EStG, capital asset losses according to § 20 para. 6 EStG, losses from services acc. § 22 No. 3 S. 4 EStG and

Losses from private divestiture transactions pursuant to § 22 No. 2. i.V.m. § 23 para. 3 p. 7 f. EStG. However, the loss compensation takes place in the event of losses pursuant to § 15 Abs. 4 p. 1 f. EStG, § 15b EStG and § 15a EStG. A further exception exists if it is a partner or spouse, who in the year of death a joint assessment for income tax acc. § 26b EStG. For these, the accountability of losses of the year of death of the deceased spouse with income of the survivor also applies.26

cc Loss offset in case of insolvency

Upon opening of insolvency proceedings, the taxpayer loses the power to dispose of and administer his assets assigned to the insolvency estate.27 However, the taxpayer remains the debtor at the opening of insolvency proceedings. The latter is the subject of income and, conversely, of losses. If losses were incurred during or before the insolvency proceedings occurred, they shall be attributed to the taxable person and taken into account in the sum of the income. Thus, case-law allows for full compensation of losses during the insolvency proceedings.28

b Horizontal loss compensation restrictions

Special legal regulations can exclude loss offsetting within one type of income. This income may be separated and allocated to a loss offsetting group.29

aa) Negative income related to third countries

Losses made abroad are deductible according to the world income principle. If a double taxation agreement provides for the exemption of taxation in Germany, losses are also not to be taken into account. For certain losses from third countries § 2a para. 1 and 2 EStG. With this, the legislature excludes losses that do not make sense for the German economy. However, if there is a positive income, there is nothing in a double taxation agreement.

other regulations, the unrestricted tax liability of those. Losses incurred can only be offset against positive incomes of the same type and of the same source country.30 Under these conditions, compensation for losses in the case of spouses who are jointly invested is permitted. However, the loss deduction according to § 10d EStG.31 is excluded. The foreign types of income excluded in § 2a EStG include the commercial and agricultural and forestry establishments located in the third country. Similarly, for participations in commercial enterprises by a silent partner and by patriarchal loans, loss compensation according to § 2a para. 1 no. 5 EStG is excluded if the debtor has a registered office, residence or place of management in the third country. According to § 2a Abs. 1 No. 6 letter a EStG, the rental or lease of immovable property or property items located in third countries is subject to the exclusion of offsetting losses.32 In addition, § 2a EStG also limits domestic losses if the expenses resulting from expenses in third countries have arisen.33

bb Shares in foreign corporations

According to § 2a para. 1 S. 1 No. 3 EStG, in the case of participations in foreign corporations which are held in domestic assets, insofar as there are certain impairments, the loss compensation is limited. The reason for this is § 2a para 1. no. 1 EStG, with which losses from foreign permanent establishments are limited and the resulting unequal treatment would result if losses from participations in foreign corporations could be compensated indefinitely. They thus even then lead to the deduction restrictions of the para. 1, if the sum of the income type remains positive, but a reduction in profits due to a participation in

foreign corporations have taken place. The specific impairments are negative income from partial write-downs, disposals (whether total or partial disposals) or withdrawals of the holding.34 Furthermore, similar operations lead to loss compensation restrictions, such as negative income resulting from the dissolution of the entity. From the dissolution of the company follows the liquidation. If the liquidation proceeds correspond to a lower value than the book value, this results in a loss of liquidation. The conversion of a foreign corporation into a partnership and the resulting loss is equivalent to dissolution. Similar negative income includes capital reduction losses. In principle, reductions in capital do not lead to income, so that the facts are negligible.35

cc. Losses from commercial animal husbandry or breeding

For losses from commercial animal husbandry and breeding, § 15 para. 1 EStG deduction and compensation restrictions. They shall not be offset with any other commercial income or with any other income. An offset is only made with other income from commercial animal husbandry and breeding.36 Commercial animal husbandry and animal breeding is to be delimited from non-commercial ones, which according to § 13 para. 1 No. 1 S. 2 EStG lead to agricultural and forestry income. For these, losses are fully offset with positive income.37

the constituent elements of § 15 para. 2 EStG, it is again commercial income. It is obligatory that the activity be carried out with the intention of making a profit.38

dd Loss on forwards

The BFH is based on the civil definition of futures contracts. Accordingly, these are contracts for foreign exchange, acceptable goods or securities that have to be fulfilled on both sides only on a certain date. In addition, there must be a relationship with a futures market, which offers the opportunity to conclude counter transactions at any time. Unlike in civil law, the specific danger of the business plays no role in the tax qualification of the futures transaction.39 According to the case law of the BFH, futures transactions are regularly assigned to the private sector of the taxpayer. However, if the transactions are customary in the branch of the taxable person or if there is a connection between the operation and the futures transactions of the taxable person by their purpose, nature and content, an operational arrangement shall be presumed. For this type of futures contracts, the prohibition of loss compensation pursuant to § 15 para. 3 EstG.40 Excluded from the prohibition on offsetting are sector-typical forward contracts. These are transactions which are part of the ordinary operations of financial undertakings, credit institutions and financial services undertakings.41 Another exception is forward contracts which serve as hedges for ordinary operations. This includes commodity futures transactions, which are made to secure the purchase and sale of commodities.42

ee) Losses on investments of domestic companies in corporations

For losses arising from subsidiaries, silent partnerships or other domestic companies in corporations in which the shareholder or Participants are to be classified as co-enterprises, see § 15 para. 4 S. 6 EStG provides for a limitation of loss deduction and loss compensation.43 The participant in the co-entrepreneurship must be limited partnerships.44 If the silent partner is to be regarded as a co-entrepreneur, the silent partnership counts as a co-entrepreneurial inner company. This type of society is called atypical silent society.45 The restrictions also apply to losses from a typically silent company through § 20 para. 1 No. 4 in conjunction with § 15 Abs. 4 pp. 6 to 8 EStG.46 The alternative event of sub-participation is not the participation of a share of a limited liability company. This is rather a joint venture in subsidiaries.47 The participant in the corporation must therefore not be a natural person.48 Other internal companies are companies which have a joint venture acc. § 15 Abs. 1 S. 1 No. 2 EStG, but there is no silent society. An example of this is the absence of the internal shareholder’s capital contribution.49 The general limitation of offsetting is not applicable to the business owner in which the silent partnership is involved.50 The possibility of offsetting losses of the internal companies is limited to the same internal company. Thus, it is not possible to offset losses with profits of other subsidiaries, silent partnerships or other domestic companies. The possibility of offsetting losses is thus limited to the source of income.51

ff) Losses on limited liability

According to § 15a EStG, limited partners or comparable entrepreneurs can only offset losses that lead to a negative capital account or increase that account with profits from the same source of income in the future. This is intended only to enable the limited partner to compensate for losses which have also burdened him economically. The economic burden is governed by company law.52 Because the limited partner is only liable for losses up to the amount of his capital share and his agreed contribution acc. § 167 para 3 HGB. In addition, no liability of the limited partner takes place for shortfalls. He is only liable to third parties up to the amount of his liability. If the agreed deposit has been deposited, liability is excluded.53 The limited partner is also not obliged to make additional payments. If losses have been generated, this debits the capital account of the limited partner. However, these only have an effect if profit shares have flowed into the capital account.54 This applies § 15a Abs. 1 EStG, in which it stipulates that losses can only be compensated up to the amount of the limited partner’s liability with positive income of another kind. A superperiodic loss deduction according to § 10d EStG from losses beyond this is also not possible. This remaining loss can be combined with later earned profits from the same participation of the limited partner acc. § 15a para 2 EStG. According to paragraph 1a of § 15a, subsequent deposits do not result in these types of losses becoming eligible for compensation or deduction. If liability or deposit reductions are the requirements of para. 1 for loss deduction or offsetting, gains are added for these changes acc. § 15a para 3 EStG. In order for offsettable losses to be recognised for later offsetting, para. 4 that the tax office records these in a separate statement. According to para 5, in the case of other companies in which there is a liability comparable to that of the limited partners, the treatment is to be analogous.55

gg Losses from tax deferral models

§ 15b EStG stipulates that losses from tax deferral models may only be offset against profits from the same source of income, provided that start-up losses amount to at least 10% of the capital to be raised or used. Accordingly, this regulation applies to income from renting and leasing pursuant to § 21 para. 2 EStG, capital assets according to § 20 para. 7 EStG and other income from recurring remuneration acc. § 22 No. 1 half. 2 EStG. The legislator aims at passive capital investments, which occur in the form of closed-end funds. Examples of this are media or film funds, externally financed life insurance or wind farms, which lead to a tax surplus of expenses due to initially high purchase and depreciation expenses.56 No application of § 15b para. 1 EStG find capital investments which lead to tax-free income according to double taxation agreements.57

hh) Losses on major corporation shares

According to § 17 para 2 p. 6 letter. (a) EStG shall not take into account losses arising from the sale of significant shares in a limited liability company, provided that the acquisition took place within the last five years and the acquisition took place free of charge. This does not apply if, instead of the taxable person, the legal predecessor could have claimed the loss. The exclusion of the consideration also occurs according to m. point (b) where the loss accrued on units purchased for consideration that were acquired within five years but did not give rise to a significant investment within the five years. The restriction is a true loss exclusion that does not provide for loss offsetting.58

ii. Losses on capital assets

The vertical loss compensation for income from capital assets is excluded by § 20 para 6 p. Thus, these incomes may not be offset against other types of income.59 The loss deduction according to § 10d EStG is also excluded. § 20 para 6 p. 2 EStG states that these remaining losses may only be offset with future positive income from capital assets. Furthermore, R 32 d Abs. 1 EStR the offsetting of losses from income of § 32d para. 1 EStG with positive income under subsection 2, which is taxed capital income.60 If, however, the favourable examination by the taxpayer according to § 32d para. 6 EStG, negative capital income subject to the withholding tax can be subject to the tariff tax rate of the income tax, which makes it possible to offset losses. In accordance with § 20 Abs. 4 EStG Losses on the sale of shares

have been, these may only with positive income of § 20 para. 2 S. 1 No. 1 S. 1 EStG.61

jj Losses on private sale transactions

According to § 23 para. 7 EStG, losses from private divestitures are only offset by profits from those transactions. Compensation with other income and other types of income is excluded. In addition, para 3 S. 7 Halbs. 2 the exclusion by loss deduction according to § 10d EStG.62 However, a supra-periodic loss compensation takes place within the framework of the private sale transactions, with which losses can be returned or carried forward. Thus, the loss compensation is limited to losses from private divestitures.63

kk Compensation of preferentially taxed profits pursuant to § 34a EStG

Losses may be incurred in accordance with § 34a Abs. 8 EStG are not offset against profits taxed in favour of § 34a (1) S. 1 EStG. A loss deduction according to § 10d EStG is therefore also excluded. § 34a para 8 EStG means that a reduced taxation can only take place if losses have not previously been compensated with the profits concerned.64 The loss compensation is to be subordinated to the most-favoured-nation principle, whereby initially positive income, which is not beneficiary under § 34a EStG, is to be offset against losses of other sources of income. A double benefit of income according to § 34a Abs. 1 S. 1 EStG is thus excluded.65

ll The constitutional conformity of a limitation of loss compensation

The limitations of horizontal loss compensation result in a breach of the objective net principle and thus constitute an impairment of the principle of taxation on the basis of economic capacity.66 Thus, this constitutes unequal treatment of the respective individual norms laid down in Article 3(3) of the Treaty. 67 In principle, loss compensation restrictions are constitutionally permissible under this provision, provided that they do not fail to compensate for losses, but only extend the term. The breach of the objective net principle also requires special justification.68

c) Vertical loss compensation restrictions

If a horizontal loss offset is already excluded for negative income and these may belong to an independent set of offsets, this also leads to the exclusion of vertical loss offsets. As already mentioned in the horizontal loss compensation restrictions, losses according to § 20 Abs. 6 p. 2 half sentence 1 EStG from capital assets not offset against income of other types. Furthermore, a vertical compensation restriction applies in the case of negative income from capital income pursuant to § 32d para. 1 EStG, which were also listed under the horizontal loss compensation restrictions. Positive income from the sources mentioned is fully compensable with other income.69

5. The loss deduction

If a negative balance remains after loss compensation, an overperiodic loss deduction must be made.70 The section taxation of § 2 para. 7 EStG breached. The purpose of the scheme is to ensure that taxation is based on economic capacity and not on the assessment period.71 Otherwise, the consequence would be that profit or surplus would always be taxed in full and losses would not be taken into account. This would lead to a disadvantage for taxpayers who earn changeable positive and negative income, to those who earn continuous lower income.72 In the case of the loss deduction, the loss reimbursement according to § 10d para. 1 EStG. If, in addition, carry-forward losses are present, the loss carry-forward according to FIG. § 10d Abs. 2 EStG.73

a Personal scope

The scope of § 10d EStG covers all natural persons subject to unlimited and limited income tax.74 In the case of spouses, the principle also applies that the losses are attributable to the person who caused them. The loss is divided according to the relationship which is due to the individual spouse in the year of earnings by a determination procedure.75 § 10d EStG also applies to corporations by the reference in § 8 para. 1 KStG. In addition, the Corporate Tax Act supplements § 10d EStG by § 8c KStG. Deviations to determine the basis of assessment of loss compensation under the Income Tax Act may be caused by:

hidden distribution of profits, special features arising from deductible and non-deductible expenses of §§ 9 & 10 KStG and tax-free income according to § 8b KStG.76

b The loss transfer according to § 10d EStG

If losses cannot be compensated intraperiodically, the remaining losses shall be carried back to the previous assessment period. Until the assessment period 2021, losses could only be transferred to the immediate previous year. § 10d (1) S. 1 EStG thus provided for the limitation of the loss transfer to 1 year.77 Since the assessment period 2022, the losses incurred from that year onwards can be carried back to two years. The loss transfer will then take place first with the direct previous year. If, in addition, there are recoverable losses, those losses are carried over in the second preceding assessment period. In addition, the loss repayment is limited by a maximum amount. This was increased from the previous one million for losses from the investment periods 2022 and 2023 to ten million. In the case of joint investment of spouses, the maximum amount shall be doubled. In addition, starting from the investment year 2022, the possibility of only partially transferring losses to the previous year will be abolished. Thus, losses are only fully taken over in the previous year. Upon request, the waiver of the loss reimbursement can be declared, whereby only the presentation can be made.78

c The loss carry-forward according to § 10d EStG

Unlike loss carry forward, a duty applies to loss carry forward unless losses have been consumed intraperiodically or by loss carry forward. The presentation shall be made ex officio in the highest possible framework. This means that the sum of the loss carry forward is exhausted until the total amount of income reaches a maximum of zero. If this is the case, there will be no special expenses, tariff allowances and exceptional charges. In terms of time, the loss carry-forward is not limited.79 However, limits are set by a so-called base amount from § 10d para. 2 EStG, which amounts to one million euros. Amounts in excess of EUR 1 million may be claimed for only 60%. The statutory amount also doubles in the case of joint investment of spouses.80

d Loss deduction restrictions

The legislature provides for deduction restrictions for certain losses. They form settlement groups in which losses may only be offset within the source of income or the type of income and deducted in accordance with § 10d. The negative income of the settlement group includes listed foreign losses according to § 2a EStG, futures contracts acc. § 15 Abs. 4 EStG, divestments of significant shares in corporations held in private assets, in accordance with § 17 para. 6 EStG, commercial animal husbandry and breeding according to § 15 para. 1 EStG, sub-participations, silent participations or other domestic companies in corporations according to § 15 para. 4 S. 6 EStG, private sale transactions acc. § 23 Abs. 3 EStG, non-extracted profits in connection with the taxation of the tax according to § 34a para. 8 EStG, income from capital assets according to § 20 para. 6 EStG and advertising costs overhangs from services acc. § 22 No. 3 S. 3 & 4 EStG.81 As already described in the horizontal limitations on loss compensation, a loss deduction may not take place in the case of negative income from limited liability if a negative capital account results. The losses may accordingly reduce later earned profits of the same shareholding.82 Losses from tax deferral models acc. § 15b EStG. However, they also reduce the income of subsequent years from the same source.83

e) Corporate loss deduction limits

If more than 50 % of the shares of a corporation are transferred directly or indirectly to an acquirer or acquirer within five years, the corporation loses its current losses for the financial year and its losses carried forward acc. §8c Abs. 1 S. 1 KStG.84 The same applies within the framework of the interest barrier for unused interest carry forwards acc. § 8a Abs. 3 KStG.85 § 8c KStG applies to limited and unlimited companies subject to corporate tax.86 When transferring nominal capital, it is not important that voting rights are transferred. Consequently, §8c KStG also applies to non-voting preference shares.87 It depends on the economic transfer of ownership. This transfer can also take place through a hidden or open deposit, as well as through a conversion.88 Whether the transfer takes place free of charge or for payment is fundamentally irrelevant.89 The indirect transfer of shares of corporations is aimed at group structures.90 If an indirect acquisition takes place, the voting rights of the individual levels must be multiplied. Thus, it may happen that a corporation holds more than 50 % of the shareholding, although it has no influence on the company.91 According to § 8c para. 5 KStG are non-harmful acquisitions of shares if there is a one-hundred percent direct or indirect participation and the acquiring and transferring legal entity is the same person.92 § 8d KStG constitutes an exception for harmful transfers of shares according to § 8c KStG. It applies to companies in which frequent changes or new acquisitions of shareholders become necessary for corporate financing.93 In addition, the company must operate exclusively the same business since its establishment or the beginning of the third preceding investment period before the harmful acquisition of the shareholding.94 If the requirements and an application according to § 8d KStG are met, § 8c KStG is not applicable and a loss deduction may be carried out.95

III. Conclusion

The aim of this work was to show what opportunities are offered to companies to include losses resulting from the current high inflation rate in the income tax and corporate tax return. To understand what the loss offset is, I listed this at the beginning of my work. Since there are some restrictions on offsetting losses, these were named and explained in the further course. Furthermore, it was examined whether such limits are constitutional, since any deviation from the principle requires justification. Due to the heavy burdens on companies due to the Corona crisis and the war in Ukraine, the repayable sum of the losses was increased to ten million in 2022 and extended by one year. This is intended to ensure that losses can be used immediately, by amending the ruling, and that those losses are not offset in the future. This can lead to relief for companies.