New tax rules for investments

The Federal Fiscal Court considers the taxation of capital investments to be unconstitutional in one important respect. In addition, the new tax rules for structured financial products are less strict than feared.

Price board on the Frankfurt Stock Exchange: Derivatives are not only used for speculation, but also to hedge against price drops

Fans structured securities can breathe a sigh of relief, because the Federal Ministry of Finance has now made it clear how the controversial new rules for losses in tax returns are to be applied. From the BMF letter of June 3, it emerges that certificates and warrants are not considered to be forward transactions. Contrary to what was feared, these investments do not fall under the limit of 20,000 euros for the tax offsetting of losses.

Derivateverband DDV welcomes the BMF letter: “It is good news for many investors, because they can now continue to use the various hedging options of these securities in a variety of ways,” said Henning Bergmann, Managing Director of the DDV.

It is comforting for investors that they don’t always have to spoon the soup that is brewed for them in the kitchen under German tax law as hot as it is cooked. This applies, for example, to the tax liability on gold securities planned last year, which, thanks to protests from the financial sector, did not make it into law. Even with a view to the cumbersome limit for the deduction of losses from futures transactions, private investors are now getting off lightly than feared.

This is thanks, among other things, to the derivatives association DDV, which has explained to politicians that certificates, warrants or knock-out products are not only used to speculate on fluctuating prices for stocks, bonds, currencies or raw materials. Such papers are also suitable for protecting custody accounts from stock market slumps, provided that experienced investors use them knowledgeably and responsibly.

One can assume that a federal finance minister who publicly gives the savings account fan and is already skeptical about stocks had to be initiated into the secrets of the certificate trade. This has apparently succeeded here, although there was still a fine hair left in the tax soup: According to the DDV, the BMF letter does not change the legal regulation that investors have to tax their profits without limit, but losses in the event of worthless Forward transactions can only be set up to a maximum of 20,000 euros per year. “There remains an imbalance in the tax legislation,” says Bergmann from the Derivateverband. This asymmetrical taxation represents a disadvantage. Instead, it should be possible to offset unlimited gains and losses.

But maybe there will still be a big breakthrough in the interests of investors in offsetting losses. The Federal Finance Court (BFH) published a ruling on Friday according to which the taxation of private investments could be partially unconstitutional. So far, investors have only been able to offset losses from equity transactions with profits from similar transactions, but not with income from other investments or sources. A couple from Schleswig-Holstein had sued against this. The Supreme Finance Court is on the side of the plaintiff and has now submitted the decision to the Federal Constitutional Court for review.