The withholding tax is levied on certain income from capital assets. An outflow of the withholding tax is the savings lump sum of § 20 IX EStG. Accordingly, instead of the actual advertising costs 801 € and for spouses 1.602 € should be set. This arrangement significantly limits the objective net principle that all acquisition-protection expenses are not subject to tax. This article clarifies when the saver lump sum applies and its problems with regard to the objective net principle. The basis for the contribution is a judgment of the FG Baden-Württemberg, according to which the disregard of the actual advertising costs is partly unconstitutional.

The basis of the withholding tax is the gross income. Advertising costs are actually not taken into account by the savers lump sum. Only 801 € or € 1,602. The withholding tax applies in principle to such capital gains which are subject to the capital gains tax according to § 20 I EStG. However, exceptions must be observed. According to § 20 XIII EStG, income attributable to another type of income is not subject to the withholding tax. In addition, it does not apply to the compulsory assessment and the election assessment within the meaning of § 32d II S. 2 EStG. In these cases, the partial income procedure applies. On the other hand, the savings lump sum in the context of the favorable examination of § 32d VI EStG applies.

Following the general principle of equality of Art. 3 I GG, the legislature must treat substantially the same equally and substantially unequally. Nevertheless, the legislator is in principle given considerable room for decision-making. However, this is considerably limited by the performance principle and the requirement of consistency. The basic principle of income tax is to collect it according to the financial capacity of the taxpayer. As a result, both acquisition expenses and living expenses must be taken into account in the taxation. If the legislator wishes to make an exception for logical implementation, this requires a factual reason.

Technical advice for

Withholding tax?

The savings lump sum allows the taxpayer only a lump sum to deduct the advertising costs. However, the taxable person may not deduct the actual advertising costs. The increase in the tax burden is particularly drastic if no tax would actually have to be paid due to the advertising costs incurred. However, the objective net principle implies that all acquisition expenses must be taken into account in a tax-reducing manner. The savers lump sum therefore constitutes an exception to the objective net principle. Interference with the objective net principle therefore requires objective justification

3.2.1. Possibility of system change

Legislators must be given freedom of design in order to act appropriately. Consequently, it can introduce new rules without being bound by the previous basic decisions. Consequently, he can also change the system. However, the change of system is only sufficiently justifiable if a new set of rules is really created. Otherwise, any derogation can be understood as a new regulation and thus justified.

3.2.2. Sparer lump sum: justification by system change

In the context of the withholding tax, the objective net principle still applies in part. For example, the objective net principle applies if capital gains are assigned to a different type of income under Section 20 VIII EStG or if a sale situation is relevant within the framework of capital income. Entrepreneurial investments are also given an option right for net taxation in accordance with § 32d II EStG. Consequently, the legislature does not consistently enforce the restriction of the objective net principle in the system of withholding tax. Furthermore, it has been clearly stated on several occasions in the legislative procedure that the deduction of advertising costs should continue to be fully permitted if the income is subject to the individual tax rate. In the explanatory memorandum to § 20 IX EStG, it was mainly pointed out that the application of the actual advertising costs is only “in principle” excluded.

For these reasons, the withholding tax did not change the system in the form of a departure from the objective net principle in the taxation of capital income. Furthermore, withholding tax is only a special form of income tax. It is therefore not a tax of its own kind, which has been recreated. In this way, it must be able to be placed within the framework of income tax. However, all other types of income are subject to normal taxation.

The taxation procedure is a mass procedure. Consequently, typifications must be made for the sake of simplification of the procedure. The legislator is therefore able to make generalizing, typifying and blanket regulations. It is only important in this context that the lump sum covers the vast majority of all cases.

It is questionable whether the savings lump sum in combination with the lower tax rate meets this requirement. In particular, it should be noted that the advertising costs for low capital returns are usually also low. For larger capital gains, on the other hand, advertising costs are usually significantly higher. Here, expensive consulting contracts were often concluded. Ultimately, it is also questionable why the typification should only apply to certain capital gains and not to others from the beginning or by means of an application. On the contrary, a breach of the consequentiality requirement is to allow one group of investors to deduct the actual advertising costs and to exclude others. This procedure involves an arbitrary lump sum, which does not concern the normal case.

Justification of a measure restricting fundamental rights is possible for reasons of simplification. Here, however, there could be a means that also has a simplifying effect, but less interference with the fundamental rights of the taxpayer. For example, it would be conceivable for the taxable person to be granted a request to take account of actual advertising costs. Therefore, in cases where the lump sum for savers adequately takes account of the taxable person’s advertising costs, no further proceedings need be undertaken. In addition, an assessment procedure is already carried out within the framework of the favourable examination. Furthermore, the dispute-prone distinction between advertising costs and current income or private sales transactions is no longer necessary. This also greatly simplifies the process.

The legislature does not justify any restrictions on the objective net principle, including through promotion and steering purposes. However, it is not clear from the explanatory memorandum that the legislature deliberately wanted to disadvantage the leveraged investment in the private sector compared to that in the entrepreneurial sector. On the contrary, it appears that the discrimination was carried out arbitrarily and without any objective reasons. On the contrary, the objective of increasing tax revenue has been placed above the objective net principle, without this being justified by extra-fiscal arguments.

In the case of FG Baden-Württemberg, the applicant’s individual tax rate under the standard taxation was 14,34 %. Therefore, the tax rate was lower than the 25 % withholding tax rate. The favourable examination of § 32d VI EStG therefore applied. The fact that FG did not take into account the actual advertising costs was remedied by constitutional interpretation of § 32d VI EStG.