Forward transactions: Is the restriction on loss offsetting unconstitutional?
Since 1 January 2021, strict restrictions apply to the offsetting of losses from futures transactions. These may only be offset against profits from futures and option transactions up to 20.000 Euro per year. Higher losses can be carried forward to subsequent years, but also only up to this maximum amount. Offsetting against other capital gains or income is excluded (§ 20 para. 6 sentence 5 EStG). This regulation was introduced by the Annual Tax Act 2020.
Current Court Decisions
In December 2023, the Rhineland-Palatinate Fiscal Court expressed significant doubts about the constitutionality of this restriction (decision of 05.12.2023, 1 V 1674/23). The Federal Fiscal Court (BFH) also confirmed these concerns. In the case under review, a taxpayer made profits from futures transactions amounting to 250.631 Euro in 2021 but also incurred losses of 227.289 Euro. The tax office allowed only 20.000 Euro of the losses to be offset, with the remaining 207.289 Euro to be carried forward to subsequent years.
Courts are increasingly questioning whether this regulation complies with the principle of taxation according to ability to pay. Taxpayers could be disadvantaged by being able to offset only small parts of their losses over many years.
Relevance of the Federal Constitutional Court
The Federal Constitutional Court is currently examining the constitutionality of loss offsetting in share transactions (Ref. 2 BvL 3/21). A decision in this case could also have implications for futures transactions. If the regulation for shares is deemed unconstitutional, this could also apply to futures transactions.
Divergent Judgments in Case Law
Case law is inconsistent. While the Rhineland-Palatinate Fiscal Court and the BFH express concerns, the Baden-Württemberg Fiscal Court sees no constitutional problems in a ruling from April 2024 (judgment of 29.04.2024, 10 K 1091/23). However, an appeal against this judgment is already pending at the BFH (Ref. VIII R 11/24).
Conclusion: Important Developments for Taxpayers
Currently, the limit for loss offsetting is 20.000 Euro per year. However, upcoming decisions by the Federal Constitutional Court or the BFH could change the situation. Affected taxpayers should closely monitor developments and appeal against their tax assessments to refer to the ongoing proceedings.
