Germany’s highest tax court, the Bundesfinanzhof, has referred a question to the Federal Constitutional Court that could unwind one of the most punitive features of the country’s capital-gains tax regime: the 2020 cap on the deductibility of losses from derivatives. In the case in question, the investor had real cash-flow gains that, on a net basis, looked modest — but under the loss cap they were taxed as if they were close to the gross.
What the rule says
The provision at issue was inserted into §20(6) sentence 5 of the German Income Tax Act (EStG) in the 2020 Annual Tax Act. It limits the annual tax-deductible amount of losses arising from Termingeschäfte — typically futures, forwards, swaps, options and certain CFDs — to €20,000 per year against gains from the same category. Losses above that limit do not disappear, but they can be carried forward only against future gains of the same kind. There is no loss-offset against ordinary capital gains and no offset against general income.
The intended effect was deterrent. The actual effect — which the Federal Ministry of Finance acknowledged at the time of passage — is that an active retail derivatives trader can in principle be taxed on losses. A trader with €100,000 of gross gains and €100,000 of gross losses in the same year has zero economic profit. Under the cap, the taxable base is €80,000: €100,000 of gain minus the €20,000 of permitted loss offset.
The case that brought it
The taxpayer in the case before the BFH (file VIII R 11/24) had a 2021 derivatives year with substantial gains and substantial losses. Economically the year was close to flat; the tax bill was not. The case progressed through the lower tax courts to the Eighth Senate of the BFH, which on 7 June 2024 issued an interim order suspending enforcement of the disputed assessment and, in a parallel referral, formally questioned the constitutionality of the rule.
The Senate’s two main concerns are unmistakable. First, derivatives gains face full taxation while derivatives losses face a regime that is more restrictive than any other category of capital-asset loss in German tax law. Second, the constitutional principle of taxation by ability to pay (Leistungsfähigkeitsprinzip) is undermined when taxable income exceeds economic income by an arbitrary amount. Both arguments have decided constitutional cases before.
What the referral does, procedurally
A BFH referral to the Bundesverfassungsgericht under Article 100 of the Basic Law does not strike down the rule automatically. It puts the question before the constitutional court, which can take years. In the meantime, the practical relief is the interim-order regime: taxpayers affected by the rule can now request that disputed assessments be held in abeyance pending the constitutional decision.
Suspension of enforcement is not refund. Taxpayers still owe the disputed amount if the constitutional court eventually upholds the rule. But the cash-flow effect of the interim relief is material: an active derivatives trader hit by the cap in any year from 2020 onwards can, with a procedurally clean filing, postpone payment of the contested portion.
What it could mean for the FX, CFD and futures-options communities
Three groups stand to be affected if the rule falls.
Retail futures and options traders — the original target of the rule — would recover full loss-offset rights against same-category gains. The asymmetric tax penalty on a strategy whose gross volatility is structurally large would be removed.
Retail CFD traders are partially in scope, depending on the precise instrument. The cap was drafted with Termingeschäfte in mind, and CFDs on equities are commonly treated as such. Industry groups have been pressing for clarity on whether the constitutional decision, if favourable, applies category-wide or only to the literal Termingeschäft subset.
Investment firms with retail-trader populations in Germany — including B-book brokers and CFD platforms — would face a shift in client demand. Loss-cap mechanics have been a material reason German residents moved to non-EU platforms; symmetric loss treatment would close part of that arbitrage.
Timing and expectations
Constitutional-court referrals of this kind typically take eighteen months to three years to decide. The provision has attracted unusually concentrated criticism from German tax academia, the major taxpayer associations, and several Land finance ministries; that does not guarantee an outcome but suggests the constitutional court will not treat the question as marginal.
Affected taxpayers should not wait for the constitutional decision before acting. The relevant tax assessments need to be kept open by formal objection (Einspruch), and the interim-suspension request must be made on the specific assessment, not in the abstract. The window for objection against an assessment is one month from notification.
This article is informational. It is not tax advice. Decisions in any specific case should be made on advice from a qualified German tax professional.