Mittwoch, 07.06.2017
Losses in income tax law
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Eckhard FinkeLawyer
Specialist in insolvency and reorganization law
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According to § 2 para. 1 EStG, negative and positive results from several sources of income of one type of income are netted out so that losses and profits can offset each other (horizontal loss offset). If not all losses can be offset in this way, they can also be offset against positive income from other types of income (vertical loss offset).
If it is not possible to fully offset the losses within the tax year in question, §10d EStG allows the loss to be carried back (limited to approx. EUR 1 million for spouses) to the previous year. If further losses remain even after this, these can be carried forward to subsequent years.
Section 10d (2) of the German Income Tax Act (EStG) limits the loss carryforward to the effect that only 60% of the excess amount may be deducted for losses in excess of EUR 1 million (so-called minimum taxation). It is questionable whether this regulation is constitutional. A constitutional complaint and an action for judicial review are pending at the Federal Constitutional Court. The OFD Frankfurt has now ordered that affected cases be suspended upon request until clarification. Affected taxpayers should therefore ensure that any notices do not become final, as otherwise they may lose out on potential losses and the ability to deduct losses earlier, thereby saving taxes.
A loss is not deducted from taxable income, but rather from the total amount of income and thus before deduction of special expenses, extraordinary charges and other deductions. As a result, such deductions are effectively (partially) lost. The BFH considers this to be constitutionally unobjectionable.
In a decision of April 14, 2016, the 9th Senate of the Federal Fiscal Court (Bundesfinanzhof, BFH) also deemed the legal regulation to be constitutional if the taxpayer has an income below the basic allowance of § 32a EStG, i.e. if he does not have to pay income tax anyway because his income is too low. In this case, too, the losses are carried back or forward so that they ultimately have no tax effect, since income tax is zero both before and after loss offset. The rule is therefore that losses come before the subsistence level, and not the other way around.
Fair taxation only obliges the state not to tax a minimum subsistence level, but not to secure it in advance in such a way that the amount is exempted or separated when calculating taxable income.
The statements represent initial information that was current for the law applicable in Germany at the time of initial publication. The legal situation may have changed since then. Furthermore, the information provided cannot replace individual advice on a specific matter. Please contact us for this purpose.