The case of a taxpayer who recorded both profits (€253,000) and losses (€227,000) with a foreign broker highlights the tax challenges that individuals can face. After the tax office demanded a payment of EUR 60 thousand, the taxpayer lodged an objection and applied for a suspension of enforcement. As expected, the tax office rejected both.
As a result, the taxpayer decided to go to the tax court and file a lawsuit. The tax office objected to the rejection of the lawsuit and continued the dispute in court. The surprising result was that the tax court declared the lawsuit admissible and granted the suspension of enforcement. The taxpayer was therefore initially exempt from paying the required EUR 60 thousand until the constitutionality of the underlying law was clarified.
The Tax Court’s justification for this decision focuses on concerns about the constitutionality of the limited amount offsetting of losses. The judges see a serious interference with the taxpayer’s personal assets and emphasize his legitimate interest in suspending payment. In this context, the taxpayer’s interest is considered to be higher than the state’s interest in collecting taxes.
Another point highlighted in the explanatory memorandum is the potential unequal treatment between the immediate taxation of profits and the deferred taxation of losses. This could result in a significant disadvantage for the taxpayer, particularly if they stop trading, die prematurely or similar circumstances arise. The concern is that losses may not be adequately taken into account, which could result in the taxpayer being disadvantaged.
Overall, this case highlights the complexity of tax law issues, particularly in the context of international financial transactions. The tax court’s decision to allow the lawsuit and to grant the suspension of enforcement temporarily marks a victory for the taxpayer and calls into question the constitutionality of the current regulations on the subject of loss offsetting restrictions. It remains to be seen how this process will continue and what impact it will have on tax law practice.
Click here for the full decision from the Rhineland-Palatinate Finance Court
The decision also makes reference to the proceedings before the Federal Constitutional Court (2 BvL 3/21), which concerns a more general question about the offsetting of losses on shares and ETFs.
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