The impermeable jungle of German tax law: loss compensation as an example of a lack of logic and justice

It is noticeable that the state levies its taxes according to criteria that are incomprehensible to most citizens and lack accessible logic. Instead of sticking to understandable principles or even a universal measure of justice, taxes are designed in a way that is seemingly arbitrary and any attempt to see them as fair is in the germsuffocated. The desire for a transparent and understandable tax law remains, which enables everyone to understand their own tax obligations and the logic behind them. But this wish has remained unfulfilled for decades and seems to be moving into the distance.

Historical perspective and failed reforms

The problem of lack of traceability is by no means a new phenomenon. Even in the days of the famous physicist Albert Einstein, it was joking that even a genius of his caliber was not able to understand his tax return without further ado. It is not for nothing that he is credited with the bon mot, one must be a philosopher to understand German tax law. inThe well-known tax lawyer Paul Kirchhoff fought with great commitment for a fundamental tax reform. However, his proposals were unsuccessful; In political operations, they were ground up by conflicting interests and eventually disappeared into the drawers. Even parties and governments that are committed to simplifying tax lawhad never seriously worked to make German tax law even remotely clear, more understandable or more transparent.

Practice: Exceptions, counter-exceptions and incomprehensible special regulations

Instead, the opposite happened: With every new regulation, every change in the law and every political compromise, the thicket grows from exceptions, counter-exceptions and special regulations. There is not only one exception to each rule, but also a counter-exception to this, and often other sub-falls, which lead to completely different results. who astaxpayer in this paragraph jungle feels lost quickly.

Loss compensation – an exemplary chaos

A particularly clear example of the lack of transparency in German tax law is the handling of losses. Basically, it sounds reasonable: losses may be offset against positive income in order to adjust the tax burden to the actual performance. But the first mistake is already threatened when the losses arise abroad, especially outside the EU.The law lists in detail the sources from which foreign losses are not taken into account. The tax authorities apparently assume that losses abroad are less painful than at home. But even this hard rule knows exceptions: losses from certain business premises abroad are recognized, provided that they are used for the production of goods or the mining of mineral resourcesrelated – but not when it comes to weapons or certain services. A cascade of restrictions follows that hardly anyone can penetrate.

European peculiarities and other hurdles

Once the border with the European Union is crossed, different rules apply. National tax rules must not mean discrimination for cross-border activities within the EU to protect the single market and EU freedoms. Losses from other EU countries are therefore treated differently. However, the legislature has also found ways hereto limit tax recognition, for example through the so-called progression reservation, which in turn was abolished for certain income. The result is an inscrutable system that is not really clear to those affected or their advisors.

Domestic losses and the pitfalls of offsetting

Even with pure domestic losses, the situation is anything but easy. Many losses may only be offset against certain profits – such as those from commercial animal husbandry or private sales transactions. Anyone who has invested in so-called tax deferral models can only compensate for losses incurred with profits from exactly these systems. The list of special cases andStumbling blocks seem to be endless, so that the hoped-for loss compensation often comes to nothing.

Time and financial limitations on loss carryforwards

Another problem arises when losses of a year exceed the positive income. Then a negative total amount is created, which can be carried forward into next year. But here, too, the law sets narrow limits: The possible loss carryforward is financially limited – to an amount of one million euros per year plus a certain percentage of additional income.This may be acceptable for smaller companies, but for medium-sized companies who have taxed profits for years and are now suffering losses through no fault of their own, this limitation is often a catastrophe.

Peculiarities of corporations and the forfeiture of loss carryforwards

Tax law provides for even stricter rules for corporations. As soon as the shareholdings change or business focuses shift, the previously accumulated loss carryforward expires. Suddenly, the company is considered “new” for tax purposes and the possibility of balancing previous losses is lost. Here, too, tax disadvantages for companiescreated, which are already struggling with economic problems.

Socialize profits, privatize losses

Anyone who gets to the bottom of German tax law quickly recognizes the underlying principle: While profits are taxed as comprehensively as possible and flow into the state coffers, losses are excluded as far as possible, privatized and kept away from tax recognition. The system is not only complicated, but also unfair in many respects. There are no transparent onesRules and understandable principles that provide clarity and planning security to taxpayers. Until something changes, the tax jungle remains an obstacle for citizens and companies – and a memorial for the need for reform in German tax law.