(Bloomberg) -- Germany’s ruling coalition will repeal a tax rule that limits the use of derivatives losses to offset profits on investments, according to a government member.
“The restriction on offsetting gains with losses from derivatives and total wipe-outs is finally going to end,” Katja Hessel, a deputy finance minister, said in a post on X.
The regulation was introduced by the previous German government in 2020. It restricts investors’ ability to use losses in some instruments to lower their tax bills on gains in other investments, a practice known as netting, in two ways.
Netting can only be applied to the same instrument, meaning a loss from a derivative can’t offset a realized gain from selling shares. Additionally, the maximum offset amount is limited to €20,000 ($21,713). That means investors are potentially subject to paying tax even when losses in derivatives outstrip gains in other assets.
The rule has prompted criticism from investors and was challenged in court. Germany’s Federal Fiscal Court ruled this year that it is probably unconstitutional and violates the principle of equal treatment.
“We are now creating legal clarity before the Federal Constitutional Court is forced to agree with the Federal Fiscal Court,” said Hessel. The change will apply retroactively to all tax cases since the rule became effective four years ago, she said.
--With assistance from Kamil Kowalcze.
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