Loss Offset for Derivatives, Futures and CFDs (Contract for Differences)

It is not uncommon for taxpayers to invest in so-called futures or CFDs with cryptocurrency. That is, the taxpayer indirectly invests in derivative financial instruments or certificates, where the cryptocurrencies are merely the underlying of the financial instrument.

If the taxpayer achieves a settlement of differences or a cash amount or advantage dependent on the performance of a cryptocurrency or a profit from the sale of such a financial instrument through the derivatives, then according to the current prevailing opinion, this is generally income from capital assets (Section 20 (2) Sentence 1 No. 3 EStG "Forward Transactions"). Income from capital assets within the meaning of Sec. 20 (2) Sentence 1 No. 3 EStG is subject to capital gains tax (25%) plus solidarity surcharge and any church tax.

Loss offset with loss offset restriction

If the taxpayer incurs losses instead of a profit, the following applies: The losses can only be offset against income from capital assets in accordance with Section 20 (2) Sentence 1 No. 3 EStG (Section 20 (6) Sentence 5 EStG). In addition, a so-called loss offset restriction applies. Losses can only be offset against profits generated up to an amount of EUR 20,000.00. Any remaining losses are carried forward to the following year and can also only be offset against profits there up to an amount of EUR 20,000.00.

Separate loss offset restriction for losses on the sale of shares

The question of whether the provision of Sec. 20 (6) Sentence 5 EStG is unconstitutional is disputed. The discussion is prompted by a decision of the German Federal Fiscal Court (Bundesfinanzhof, BFH) in 2020, which referred the question to the German Federal Constitutional Court (Bundesverfassungsgericht, BVerfG) for a ruling on whether Section 20 (6) sentence 5 EStG, old version (now: Section 20 (6) sentence 4 EStG) is unconstitutional. This is because Section 20 (6) sentence 5 EStG (old version) contains an exception to the fundamental possibility of offsetting losses and carrying forward losses from capital income.

Pursuant to Sec. 20 (6) sentence 5 EStG old, losses from capital assets arising from the disposal of shares (share disposal losses) may not be offset against other positive income from capital assets or gains from capital assets, but only against gains arising from the disposal of shares (share disposal gains). Losses on the disposal of shares are thus - like losses from forward transactions - subject to a separate loss offset restriction.

Taxpayers who invest in so-called futures and have recorded losses should therefore, as a precaution, file an appeal against income tax assessments that take into account the loss offset restriction of Section 20 (6) sentence 5 EStG.

Representation in opposition proceedings as well as in fiscal court proceedings

We represent you in opposition proceedings as well as in fiscal court proceedings and advise you on questions regarding the tax recording and evaluation of cryptotrades, airdrops, lending, staking, futures and the like.

As lawyers, tax advisors, tax law specialists in Cologne, we offer many years of experience in the field of tax law and criminal law. Each of our lawyers has a double qualification, some of them were tax officials themselves for many years. You will always have a competent contact person for questions and will be informed about the current status of your case at any time without being asked.