Loss compensation
As a loss compensation in which is income tax withholding negative income from one or more sources of income ( losses ) denotes positive income from other sources of revenue.
Losses can be offset “horizontally”, “vertically” or temporarily in accordance with Section 10d EStG by means of a loss carried forward or a loss carried back to other assessment periods .
The first level of loss treatment is loss compensation according to § 2 EStG, which affects income and losses in the same assessment period (e.g. calendar year 2006).
- With horizontal loss compensation , losses are offset against profits of the same type of income. For example, the income and losses from two businesses in 2006 can be offset: Income from sole proprietorship 50,000 euros ./. Loss from limited partner participation: 20,000 euros = income from commercial operations: 30,000 euros
- With vertical loss compensation , losses are offset against profits from other types of income (e.g. losses from commercial operations with income from renting and leasing in 2006). Vertical loss compensation is mostly used when negative income (= losses) that can still be offset despite horizontal loss compensation remains. Since January 1, 2004, vertical loss compensation has been possible without any restrictions, although with tax deferral models signed after November 10, 2005, the possibility of offsetting losses is limited to the extent that losses can only be offset against later profits from the participation.
- Section 10d of the Income Tax Act (EStG) summarizes under the term loss deduction the possibilities to carry back losses to earlier assessment periods or to carry them forward to subsequent assessment periods. This concerns the losses that remain after horizontal and vertical loss compensation. The terms "loss carryforward" and "loss carryforward" are used. The loss carry back is limited to one year (i.e. losses from 2006 can only be carried back to 2005) and the amount is limited to 1,000,000 euros or to 2,000,000 for spouses who are jointly assessed. The loss can be carried forward indefinitely to the following calendar year (e.g. carry forward losses from 2006 to 2007 etc.). The deduction of the loss carryforward is, however, limited to 1 million euros plus 60 percent of the total amount of income in excess of 1 million for the respective assessment period (so-called minimum taxation); any loss carryforward remaining thereafter is then carried forward to the next year.
The "year of loss" is the assessment period in which the loss arises, "year of deduction" or "year of carry-back or carryforward" is the assessment period in which the loss is deducted from the year of loss in accordance with Section 10d EStG.
If the loss is carried back (losses from 2006 are carried back to the higher-turnover year 2005), the taxpayer receives an immediate refund from the tax office. In the context of reducing tax advantages , the restriction of loss compensation is regularly discussed, as this is the basis for numerous tax-saving models.
The Grand Senate of the BFH decided in a resolution of December 17, 2007 (Az .: GrS 2/04) on the question of the non- hereditary nature of the loss carryforward that an heir should no longer use a loss carryforward according to § 10d EStG in the future to reduce his can claim their own income tax. The Grand Senate of the Federal Fiscal Court has thus moved away from a 45-year-old supreme court jurisprudence and corresponding tax administration practice. For reasons of protection of legitimate expectations, the new, less favorable case law for taxpayers is only to be applied in inheritance cases that will occur after the publication of this decision on March 12, 2008.
The background to this decision is a legal dispute in which a farmer and farm heir seeks the deduction of the loss carryforward not used by his deceased father as part of his income tax assessment. The XI. In the order for reference of July 28, 2004 (Az .: XI R 54/99), the Senate of the Federal Fiscal Court took the view that the loss deduction according to § 10d EStG, contrary to the established case law of the BFH, is not hereditary.
The Grand Senate agreed to this in principle. The transfer of the loss carryforward not used by the testator to the heir could be based neither on civil law nor on tax law regulations and principles. Income tax is a personal tax. It captures the efficiency of the individual natural persons which emerges in the income and is therefore governed by the principle of individual taxation and the principle of taxation according to individual efficiency . It is incompatible with this to transfer the loss carry-forwards not used by the testator to the heir:
"... The individual natural person is the subject of the income generated by him (§ 2 Abs. 1 EStG). The personal tax liability extends to the lifetime of a person; it ends with his death. In this case, the assessment is on the The testator and heir are different legal entities, each of which is used for income tax purposes and whose income is determined separately and allocated to the respective income tax entity. 2. These principles speak against this, which do not apply to the testator until his death The loss carryforwards that have been used up are to be transferred to another subject of income tax law - even if only to his heir (universal successor) - and to allow him to offset the "losses" with his own - positive - income ... "
However, due to the rule of law, the Grand Senate considered a trust-protecting transitional regulation to be necessary. The new case law, with which the legal situation that has existed for decades - comparable to a change in the law - actually changes, is therefore only to be applied with effect for the future.
literature
- Stephan Kudert : Tax law , 2nd edition.
