German dual income tax law makes a fundamental distinction between profit income and surplus income. Nevertheless, certain capital gains achieved in private assets are subject to a so-called withholding tax. The withholding tax is the capital gains tax to be withheld for certain capital products. Therefore, in §§ 43ff. EStG did not regulate withholding tax of another kind, but only a special form of collection of income tax. This contribution explains the withholding tax and when it makes sense to apply for the cheaper examination instead of the withholding tax.

The withholding tax is regulated in §§ 43ff EStG. This applies in principle through the references in § 43 I EStG to the taxation provisions of § 20 EStG. The facts of § 20 I No. 1 EStG are of central importance. Accordingly, open and hidden profit distributions are subject to the withholding tax. In the context of the tax deduction, it is irrelevant to which type of income the capital income is to be assigned (§ 43 IV EStG). Consequently, the tax deduction must also be made at source for income from other types of income. In this context, however, other taxation rules apply. Nevertheless, the catalogue in § 43 I EStG is not exhaustive. Rather, other standards also determine the application of the withholding tax (e.g. 50 InvStG).

§ 32d I 1 EStG provides that the tax rate of the withholding tax is 25 %. The result is that the progression tariff of § 32a EStG does not apply. Therefore, the basic allowance under the withholding tax does not apply either. Consequently, the tax of 25% is due on the first euro. Furthermore, the tax rate applies uniformly and independently of the amount of the capital gains. However, this is considered low in relation to the progression tariff and therefore advantageous.

Before the introduction of the withholding tax, the actual acquisition expenses could in principle be deducted for all types of income. The income subject to the withholding tax is taxed on a gross basis. Instead of the actual advertising costs, according to § 20 IX EStG the savings lump sum iHv. € 1,602 for spouses. Therefore, those who have actually paid advertising costs that exceed the lump sum are disadvantaged. This can happen quickly, for example, if extensive consulting services are used in the context of larger investments.

In the case of capital gains or redemption profits, however, acc. § 20 IV EStG the actual acquisition costs, disposal costs and related costs are deducted. Other advertising costs, on the other hand, can only be claimed via the lump sum. Therefore, the distinction between general advertising costs and acquisition costs is important. Costs and ancillary costs are expenses directly related to the acquisition or disposal. A direct connection is to be assumed in view of § 4 IV EStG if the expense is caused by the transfer of the (economic) ownership of the investment. Custodial and administrative fees can no longer be taxed since they are not directly related to an acquisition or sale.

According to the BMF, services to be considered should only be those provided by a credit institution, since only these are directly related to an acquisition or sale. This is objected to by the fact that the concepts of acquisition costs and disposal costs are not legally defined. Therefore, the general principles should be used to distinguish advertising costs from non-acquisition costs. Accordingly, such ancillary costs should then be regarded as acquisition-related costs insofar as they were incurred after the relevant acquisition decision.

The cheaper examination within the framework of the withholding tax according to § 32 d VI EStG allows the taxpayer to apply for the tax assessment at the regular rate for the capital gains. The result is that the validity of § 43 V EStG is breached.

Requires an application from the taxable person. For the respective investment period, this can only be provided uniformly for all capital gains or, in the case of spouses, only for all capital gains of both spouses. Unlike in the case of the election assessment according to § 32d II EStG, the application does not have to be submitted together with the income tax return. In the income tax return, however, you can specify your relevant capital gains and choose the option “favorable examination”. In addition, you must submit appropriate tax certificates. If you submit the application outside the income tax return, the capital income must be declared separately to the tax office and continue to submit all tax certificates. There is no deadline for the request.

After submitting the application, the tax office ex officio checks whether the application of the general regulations leads to a low tax. If this is not the case, the application shall be deemed not to have been made. If the conditions are met despite refusal, the usual remedies are still available. Attention: If your investment income does not provide the basic allowance of € 9,744 in 2021 (€ 9,408 in 2020; € 9,984 in 2022) (§ 32a I 2 EStG) You absolutely have the request for favorable examination. Otherwise, all capital gains will be subject to tax of 25% from the first euro. Under the standard taxation, on the other hand, their capital gains are exempted.

The income from capital assets is to be added to the income to the other types of income and subjected to the collective income tax. Therefore, the progressive standard tariff (§ 32a I EStG) applies. Withholding capital gains tax is then counted against income tax according to § 36 II No. 2 EStG. This can lead to tax refunds.

Despite the request for a favourable examination, the prohibition of deduction for advertising costs of § 20 IX EStG still applies. This also applies to the prohibition of loss offsetting of § 20 VI EStG. However, § 20 VI EStG only precludes offsetting with losses from another type of income. Consequently, it is still possible to offset losses against losses from other capital gains. These losses must then also be included in the application according to §32d VI.

The crediting of foreign withholding tax is also governed by the special rule of § 32d V EStG. Accordingly, the foreign withholding tax determined pursuant to § 32d V EStG is to be counted against the additional tariff income tax, which is attributable to the added capital gains. The amount of the crediting is limited to the German tax, which is attributable to the investment income through the favorable examination.

For present losses from other types of income, it is to be estimated to what extent positive income will be achieved in the future. It is true that the reimbursement of capital gains tax leads to a liquidity advantage. However, future positive income cannot be offset against carried forward losses.