Since the introduction of the final withholding tax, investors have been able to offset income and profits against losses from investments.

In practice, this takes place at the level of the investor's bank or in his tax assessment.

This delimited loss accounting group is necessary because only investment income is subject to the special withholding tax rate.

One restriction applies to shares: Realized losses from shares may only be offset against share gains.

Share losses that have not been offset are carried forward by the bank and can be offset in subsequent years.

In the event of high share losses and low other income, the offsetting and thus the tax reduction can be postponed far into the future.

This regulation has always been questionable.

Why can't share losses be offset against dividends from shares, as these reduce the value of the company and thus a later profit from the shares?

Why does this rule apply to directly acquired shares, but not to equity funds such as an ETF on the Dax?

The Federal Finance Court (BFH) as the highest German tax court has now been able to deal with this restriction in court proceedings and rejects it as potentially unconstitutional.

As a result, the Federal Constitutional Court must now decide.

For the Federal Fiscal Court, the reasons given by the legislature to protect tax revenues from the risk of loss caused by speculation with the share loss restriction are not sufficient.

Because investors are treated differently without comprehensible justification, because losses from stock funds or stock certificates can always be offset.

In addition, the BFH highlights the risk of a permanent loss of loss if an investor dies with unpaid share losses.

Affected investors with net share losses and positive other capital gains should apply for a review of their capital income in the tax assessment and keep their tax assessments open by objection with reference to the BFH reference decision (Az. VIII R 11/18).

This allows them to benefit from a positive decision by the Constitutional Court.

The author is a tax advisor and partner at KPMG.