W.he annual tax law brings some positive things and some things that are not so nice every year. The latter will probably apply to many investors in 2021. The fact that, despite all the praise for the abolition of the solidarity surcharge, people usually forget to mention that investors will continue to pay it cheerfully is certainly a nuisance for some.
However, there is also reason to complain in the derivatives industry, but above all with so-called CFD brokers. These trade for investors with Contracts for Difference, which are based on price changes and not the actual prices of the underlying assets. As a result, larger quantities can be traded with less capital investment and can disproportionately participate in price movements. With the high chances of winning, however, there is also a high risk of loss. The bottom line is that an average of three out of four investors are currently losing money trading CFDs.
It would be all the more important for them to adequately offset profits and losses. But this is precisely what the CFD broker does not see as a result of the annual tax law. This provides that losses from futures transactions such as CFDs can be offset against profits in the current calendar year up to an amount of 20,000 euros. Losses not offset can be carried forward and offset again in the amount of 20,000 euros. This is an improvement in that the limit was previously 10,000 euros.
However, there is a catch, explains Simona Stoytchkova, managing director of the broker IG Europe. “Since the losses can only be offset against profits from futures transactions, an investor who has made 100,000 euros in profit and loss, for example, has to pay tax on 80,000 euros, although the bottom line is that he has not made any profit.” Those who only make profits of 50,000 euros would have to pay tax on a profit of 30,000 euros despite losses of 50,000 euros.
According to the German CFD Association, it is fundamentally at least questionable from a constitutional point of view that the state wants to fully participate in the profits of investors, but at the same time is only very limited in willingness to bear losses and offset them. “The fact that the amount of the billing limit has been raised does not change anything in our criticism – this is just a matter of optical cosmetics that, in our opinion, cannot straighten out the imbalance of the situation,” says association manager Rafael Neustadt.
Even more so, because the new regulation only affects the Income Tax Act. This means that business assets are left out and only private investors suffer. “In our opinion, it is incomprehensible that such obstacles are put in the way of private investors when they are involved in the capital markets – especially when this commitment takes the form of retirement provision and asset accumulation,” says Neustadt. CFDs played a role here. In a recent study, for example, more than a fifth of those questioned indicated that they were mainly used for security purposes.
Stoytchkova also does not consider the argument that a limited loss deduction prevents investors from taking greater risks to be coherent. In general, the tax withholding ensures that investors with domestic brokers have a liquidity disadvantage and thus have an incentive to migrate to less regulated foreign brokers. Stoytchkova complains that the regulation of CFDs, which has been tightened in recent years by limiting speculative leverage and strict rules for advertising, has led to a sharp drop in income – not least because the clientele wants to take these risks.
It would be appreciated if customers for whom CFDs were not a suitable investment would be protected. And it is also not a sustainable business basis if customers make losses and then jump off. “But you shouldn’t discriminate against our experienced customers. We are also in competition with black sheep from abroad who are undermining regulation and not offering comparable investor protection. It is to be feared that further investors will switch to these providers, which should not be in the interests of the legislature. “