The Annual Tax Act 2024 (JStG 2024) brings a welcome change for capital investors: loss utilisation will become simpler. The legislator is cancelling the previous special loss offsetting restrictions for forward transactions and losses from bad debts in private assets (see BT Drs. 20/13419). Existing loss carryforwards from these areas can now be offset against all income from capital assets without restriction, which significantly improves tax flexibility for investors. What exactly will the JStG 2024 change and what will remain?
Background: Facilitating the offsetting of losses
Previously, losses from forward transactions and bad debts were subject to strict restrictions as part of the flat-rate withholding tax. These could only be utilised within special loss offsetting groups, which restricted the use of losses for investors. With the JStG 2024, these loss carryforwards will become "good" losses: they will immediately be available for unrestricted loss offsetting against all income from capital assets (see BT Drs. 20/13419, p. 234). This means that investors can now also offset losses from forward transactions against dividends, interest or other investment income, which reduces the tax burden under the flat-rate withholding tax.
Major criticism and case law
The previous loss offsetting restrictions had been heavily criticised by experts and investors. This dissatisfaction also reached the courts. The Federal Fiscal Court (BFH) stated in its ruling of 7 June 2024 constitutional concerns regarding the special loss offsetting for forward transactions. The BFH questioned whether the restriction of loss utilisation is compatible with the principle of equality. As of 28 November 2024, the Federal Constitutional Court has not yet made a final decision on this, but the case law has obviously prompted the legislator to act. The JStG 2024 takes these concerns into account and abolishes the restrictions on forward transactions and bad debts.
Loss offsetting restriction for share transactions remains in place
Despite this relief, the legislator has not dared to take a comprehensive reform step. The restriction on loss offsetting for share disposal losses that has been in place since 1 January 2009 remains in place. This regulation, which is often criticised as incomprehensible and unfair, continues to restrict the use of losses by investors. Losses from share transactions are considered "bad" losses and can only be offset against gains from other share transactions, but not against other investment income such as interest or income from forward transactions. This unequal treatment seems hardly comprehensible for private investors.
The BFH had also expressed concerns here. As early as 2020, it referred the question of the constitutionality of this regulation to the Federal Constitutional Court (cf. TXGT blog from 11 June 2021). However, there has been no ruling to date and the JStG 2024 leaves this restriction untouched. Investors must therefore continue to accept limited loss offsetting for shares, which makes the flat-rate withholding tax less flexible in this area.
Conclusion and outlook
The JStG 2024 marks an important step towards improving the utilisation of losses for capital investors. The abolition of the restrictions on loss offsetting for forward transactions and bad debts is an overdue step forward that responds to criticism from case law and practice. The reform remains incomplete as the restrictions on share transactions remain in place. As of 28 November 2024, it remains to be seen whether the Federal Constitutional Court will overturn the remaining regulations and force the legislator to make further adjustments.
For investors, the JStG 2024 represents an opportunity to use existing loss carryforwards more effectively and to optimise the flat-rate withholding tax. However, careful tax planning remains essential, especially for mixed portfolios with shares and futures.
Dr Tobias Stiegler, tax and capital markets expert at the tax firm specialising in transactions, investments and tax compliance TAXGATE, will be happy to support you in realising these new possibilities.
