The Scholz Brake: Fixing Germany’s New 1000% Trader Tax

Would you like to read – from begin to end – a 18 page pounderous law draft titled “Law for introducing a duty to report cross-border tax structuring”? The members of the German Bundestag apparently didn’t. After all, nothing seemed wrong with a duty to report cum-ex schemes. So the new law, proposed by finance minister Olaf Scholz, passed legislation on December 12, 2019 without much discussion. Only afterwards its real content, hidden on page 15, became public. It caused incredulity and turmoil among traders and investors. This article deals with the new bizarre German ‘trader tax’, and with ways to step around it.

News about a “1000% tax for traders” and even a “tax on losses” spread quickly in January 2020. Hopefully, fake news? This is the relevant section of the new law (Art. 5 § 20 sentence 6 number 4):

“The Income Tax Act as published on October 8, 2009 (Federal Law Gazette I p. 3366, 3862), last amended by Article 1 of the Law of August 4, 2019 (Federal Law Gazette I p. 1122), is changed as follows. The following sentences are inserted after § 20 paragraph 6 sentence 4: Losses from financial assets within the meaning of paragraph 2 sentence 1 number 3 may only be offset in the amount of 10,000 euros with profits within the meaning of paragraph 2 sentence 1 number 3 and with income within the meaning of § 20 paragraph 1 number 11; sentences 2 and 3 apply mutatis mutandis with the proviso that losses that have not been offset each year may only be offset against profits up to the amount of 10,000 euros with profits within the meaning of paragraph 2 sentence 1 number 3 and with income within the meaning of § 20 paragraph 1 number 11. “

Translation: For the income tax, trading losses cannot anymore be offset against trading profits in excess of EUR 10,000 per year.

Bad enough. But surely they mean that an annual loss can only be offset in 10,000 EUR portions against annual profits in subsequent years? That was at least my interpretation. It made a sort of sense, and appeared harmless if you anyway do not plan to have an annual trading loss. But rumors said that they mean to tax not the annual net profit, but the profit of every single trade. Some said it’s even a tax on every favourable price tick of any open position, since this already constitutes a profit. In any case, this would quickly sum up to an insane tax amount – no matter if you win or lose. It’s in fact not a tax on income, but a tax on volatility, portfolio diversification, and hedging. And it was not even clear for which sorts of assets that tax is due. The relevant § 2 sentence 1 number 3 can be applied to options, futures, and bonds, but possibly also to all leveraged assets such as forex, CFDs, ETFs, and stocks. Only the risky and ecologically damaging speculation with cryptocurrencies seems exempt.

The win/loss offset mystery

For getting clarification, I wrote a letter:

Dear Federal Ministry of Finance,

on my blog I would like to inform readers about the current “Law for introducing a duty to report cross-border tax structuring”, in particular about Art 5 § 20 sentence 6 number 4. However, I am not sure that I fully understood the new law. Therefore I kindly ask you to briefly answer my subsequent questions.

1) Which of the following financial products fall under the referred “financial assets”: stocks, currencies (‘Forex’), options, futures, CFDs, savings contracts with a limited term, German treasury bonds?

2)  Which tax is due in this scenario: Bob owns EUR 20,000 that he invests in options trading. He buys about 200 options per year. In one winning year, 101 of the transactions ended with a profit of EUR 1000 each, 99 transactions with a loss of EUR 1000 each. The annual result is EUR 2000. The taxable profit is EUR 101,000, for which Bob has to pay a tax of EUR 91,000 x 25% = EUR 22,750 after deducting EUR 10,000 loss. The tax rate in relation to the EUR 2000 profit is 1137.5%.  Is the tax calculation correct?

3) Same scenario, but a losing year. 101 transactions ended with a loss of EUR 1000, 99 transactions with a profit of EUR 1000. The annual loss is EUR 2000. The taxable profit is EUR 99,000. After subtracting EUR 10,000, Bob has for his loss a tax liability of EUR 89,000 x 25% = EUR 22,250.

4) Same scenario, but Bob now tries to outwit the new trader tax. He buys a single long-term position for EUR 20,000 at the begin of the year. Due to leverage, the total value of the position has risen by EUR 100,000 by the middle of the year, then dropped again by EUR 100,000 by the end of the year. Bob sells at the end of the year at purchase price. The year ends profit-neutral and Bob intends to pay no tax.
   But the finance ministry is not as easily fooled. Since the tax also applies to the value increase in the middle of the year, the taxable profit minus loss deduction is EUR 90,000. Bob gets a tax bill of EUR 90,000 x 25% = EUR 22,500.

5) Same scenario as 2), but for stepping around the new trader tax, Bob now avoids closing positions. Instead he exercises all options, no matter of in the money or not, shortly before expiration. The paid premium is then not a loss, but a purchase fee. Since the broker offsets simultaneous long and short positions automatically, the finance ministry can do nothing about that.
   At the end of the year remains a single long position in the underlying with a value of EUR 2,000, which is then sold. The taxable profit amount is EUR 2,000 x 25% = EUR 500.

6) Same scenario as 2), but for stepping around the new trader tax, the broker has now offered a new structured product. Instead of closing positions, they are converted directly into another asset of the client’s choice that does not fall under § 20 sentence 6 number 4 (for instance, a nonleveraged stock). The premium for selling options is also not paid in cash, but in a position of that asset. At the end of the year, a position with a value of EUR 2,000 remains in Bob’s account, which is then sold. The taxable profit amount is EUR 2,000 x 25% = EUR 500.

I would be pleased if you could briefly tell me which of the tax calculations in the 5 scenarios are appropriate. I would also be interested in a brief explanation of the purpose and motivation behind the new law. And I would be very interested in an explanation how Bob in scenarios 2-4 is supposed to pay his taxes, since  they exceed all his capital.

Sincerely yours

Johann Christian Lotter

I was obviously not the only one who asked the ministry about the new law. I got a long formal response with little information content. It did not answer any of my questions, but confirmed that the 1137% tax and the tax on losses in scenarios 2 and 3 is for real. They did not comment on the tick tax of scenario 4.

Even the experts in Scholz’ finance ministry seem mystified about the implementation, motivation, or objective of this new law. It does not stand alone, but is part of a bundle of similar (although slightly less absurd) laws against retail traders and small investors. Their purpose is a mystery. They seem not motivated by populism. Except for the upcoming transaction tax, few know about them. Some say that they were originally intended against tax scams and large-scale speculation, and only designed in a wrong way.  But that is of course impossible, since it would imply a remarkable intellectual incapacity of our lawmakers. Maybe Scholz just intended to show a leftist position for his election to party chairman (which failed nevertheless). Or he’s really convinced that people who live from trading are all speculators and capitalist pigs, and must be hit whenever possible. Who knows. A personal confession at this point: I, also, am responsible for the new tax. I have always voted for Olaf Scholz’ party in the past. Often just out of tradition. This was apparently not always a wise decision.

Four ways to fix the tax

The trader tax will be in effect from 2021. It will then be unique in the world. No other country has a tax on volatility or diversification. I think it will not last long: Traders financially ruined by it, like Bob in some of the above examples, will challenge it in court. The Federal Supreme Court might eventually annul it due to unlawful overtaxation or its blatant absurdity. But until that happens, we’ll have to live with it.

Large-scale tax scammers, speculators, and hedge funds can laugh at Scholz’ tax constructs. They just incorporate, preferably offshore, and are exempt. That’s no solution for small private investors. Scenarios 5 and 6 are two possible ways to avoid the trader tax. A third, relatively simple method would be a trading account in a cryptocurrency. As long as the tax is not applied on open positions, converting one financial asset into another should be tax-neutral, since it does not realize any profit. The problem: You never know what bitcoin, or another account base that brokers might offer for outwitting the tax, will be worth next year. And the ministry was unable to precisely describe how the tax will be applied and which assets are affected. So there’s no guarantee that these workarounds do really work. The safe way is staying below the loss limit.  

I know that the Zorro platform, on demand of several German users, will get a new indicator, the Scholz Brake. This indicator will be implemented in the next Zorro release. It can be set up at the session start and at the begin of any year, like this:

if(is(INITRUN) || year(0) != year(1)) // any new year
ScholzBrake = 10000; // activate the Scholz Brake

Once set, the ScholzBrake variable will be counted down by all trading losses of all Zorro instances that run on the same PC and have activated it. So the script can always check the distance to the critical EUR 10,000 total loss limit, and decide what to do. If the variable reaches zero, trading is automatically suspended until the end of the year.

This prevents you (mostly) from the effects of the new law. Of course at the price of not trading for the rest of the year. If you live from trading and have hit the Scholz limit early in the year, you got enough time to look for a new job. Maybe as an expert in the finance ministry.


1. Gesetz zur Einführung einer Pflicht zur Mitteilung
grenzüberschreitender Steuergestaltungen

2. ARD Börsenmagazin

3. ScholzBrake

4. Petition

17 thoughts on “The Scholz Brake: Fixing Germany’s New 1000% Trader Tax”

  1. This is a law that looks – as usual – to be intended to make matters worse for non-institutional market participants, so they do not challenge corporations in the market, and not even the tiniest bit.

    Thank you for covering it, and hopefully
    1. It will be clarified soon how this is supposed to work and
    2. Traders organize themselves to get rid of this.

    A law that punishes hedging of stocks is about the dumbest thing imaginable.

  2. Thank you for all that humor you did put in your request.
    I bet you really made them swet.

    Anyway, I also thank you a lot for the %$/&%§brake.

    I did read your article with a tear and a smile.
    In the end, leaving germany is the only option.

    There is still time, you are right, to search a job in Switzerland 🙂
    See you soon Switzerland 2021.
    They welcome german IT knowledge.

  3. There is hope to stop this ridiculous idea even before 2021.

    Today, 30 Jan 2020 in the Handelsblatt:

    Brisantes Gutachten zur Finanztransaktionssteuer
    Der Beirat des Finanzministeriums warnt vor den Plänen zur Börsensteuer von Olaf Scholz. Sie sei „aus ökonomischen Gründen nicht sinnvoll“.

    Berlin Mit aller Macht versucht Olaf Scholz (SPD) derzeit, eine EU-Finanztransaktionsteuer durchzusetzen. Seit Jahren hat die Bundesregierung die Einführung versprochen, der sozialdemokratische Bundesfinanzminister hat zugesagt, nun endlich zu liefern. Allerdings trifft er auf harten Widerstand, insbesondere aus Österreich. Ob die Steuer dieses Jahr noch kommt, ist höchst fraglich.

    Kritik kommt allerdings nicht nur aus dem Ausland, sondern auch aus dem Umfeld des Ministers. So hält auch Scholz’ ökonomischer Beraterkreis vom Vorschlag des Bundesfinanzministers nichts. Dies geht aus einer unveröffentlichten Stellungnahme des Wissenschaftlichen Beirats beim Bundesfinanzministerium hervor, die dem Handelsblatt vorliegt.

    „Insgesamt ist festzuhalten, dass die Einführung einer Finanztransaktionssteuer auf Aktiengeschäfte aus ökonomischen Gründen nicht sinnvoll ist“, lautet das harsche Urteil des Gremiums, in dem viele namhafte deutsche Ökonomen sitzen. Die Autoren ziehen sogar die Verfassungsmäßigkeit der Steuer in Zweifel.

    Scholz’ Plan sieht vor, Aktiengeschäfte künftig mit einem Steuersatz von 0,2 Prozent zu belegen. Doch trotz des vermeintlich geringen Satzes warnt der Beirat vor gravierenden Folgen. „Die Ausweichreaktionen der Handelsteilnehmer auf die Steuer sind erheblich“, schreiben sie. Handelsaktivitäten würden eingeschränkt, Handel verlagert auf steuerlich nicht erfasste Börsenplätze.

    Diese Wirkungen existieren laut den Ökonomen keineswegs nur in der Theorie, sondern seien ganz konkret in den Ländern zu beobachten, in denen bereits eine Finanztransaktionssteuer eingeführt worden sei, wie etwa in Frankreich. Dort sei das Handelsvolumen um satte zehn Prozent gesunken. Als Folge musste die Regierung mit deutlich weniger Einnahmen auskommen als geplant. Für 2013 wurden Einnahmen in Höhe von 1,6 Milliarden Euro erwartet, tatsächlich wurden jedoch nur 756 Millionen Euro erzielt.

    Beispiele im Ausland zeigen, dass die Ziele nicht erfüllt wurden
    Die Befunde für Frankreich „legen den Schluss nahe, dass die mit der Einführung der Finanztransaktionssteuer verbundenen Ziele nicht erfüllt werden“, heißt es in der Beirats-Stellungnahme. Die Ironie daran: Scholz’ Argument für einen auch möglichen nationalen Alleingang ist, dass andere Länder wie Frankreich eine Finanztransaktionssteuer bereits erfolgreich eingeführt hätten.

    Die Ökonomen fürchten aber noch Schlimmeres: Eine Steuer könnte zu einer echten Gefahr für die Finanzmarktstabilität werden. Würde aufgrund geringer Einnahmen die Steuer angehoben, könnten Marktteilnehmer koordiniert auf Börsen ausweichen, wo die Steuer nicht erhoben wird – „mit dem Ergebnis, dass die Liquidität von Börsen innerhalb der EU plötzlich und deutlich abnehmen würde“, warnt der Beirat.

    Eine solch desaströse Erfahrung habe Schweden 1984 bei Einführung der Steuer gemacht. Fluchtartig wurde Handel nach England verlagert, die schwedischen Märkte brachen „stellenweise zusammen“. Erschwerend komme hinzu, dass die Steuer vor allem auf Eigenkapitalinstrumente anfalle. Dabei sei eine zentrale Lehre aus der Finanzkrise gewesen, die Eigenkapitalbasis wirtschaftlicher Akteure zu stärken, so der Beirat.

    Die befürchteten Ausweichreaktionen könnten zudem nicht nur wirtschaftliche, sondern auch verfassungsrechtliche Folgen haben. Da es keine rechtliche Grundlage gebe, die Steuer auch im EU-Ausland durchzusetzen und sich viele Investoren einer Besteuerung so entziehen könnten, „kann dies letztlich aufgrund eines möglichen strukturellen Vollzugsdefizits auch die Verfassungsmäßigkeit der Steuer infrage stellen“, schreibt der Beirat.

    Die Ökonomen hatten ihre Stellungnahme eigentlich bereits im November 2019 fertiggestellt, veröffentlicht hat sie das Finanzministerium bislang noch nicht. Denn für Scholz kommt das Gutachten zu einem ungünstigen Zeitpunkt.

    Erst vor wenigen Tagen hatte der österreichische Finanzminister Gernot Blümel am Rande des Treffens der Euro-Finanzminister den Plan seines deutschen Kollegen hart kritisiert. „Das ist das Gegenteil dessen, was ursprünglich intendiert war“, sagte Blümel. Die Steuer treffe in ihrer jetzigen Ausgestaltung überwiegend normale Anleger und nicht wie ursprünglich geplant Investoren, die mit hochspekulativen Papieren zocken.

    Sollte eine Lösung in der EU scheitern, will Scholz die Steuer auf nationaler Ebene einführen. Er hat die Einnahmen von schätzungsweise 1,5 Milliarden Euro fest zur Finanzierung der Grundrente eingeplant. Doch da ist die Union skeptisch. Mit der Analyse des Beirats bekommt sie nun neue Munition. Genau das hätte das Finanzministerium offenbar gern vermieden. Eine Übergabe des Gutachtens an das Finanzministerium und die Veröffentlichung waren erst für März geplant. Bis dahin soll die Steuer längst beschlossen sein.

  4. The obvious solution is to set up a partnership that pays tax on business income (gewerbliche Einkünfte). A GmbH & Co. KG, a form of German trade partnership, would be able to set off losses from derivatives trades against gains from derivatives trades and it will be tax transparent for income tax purposes. So the partnership will pay trade tax (Gewerbesteuer) on net profits, and a trader/partner would pay personal income tax on his shares of net profits. That trader will lose the benefit of the current 26.375 % flat tax on profits and will pay tax according to his personal tax bracket, which may be more or less than the flat tax. However, that structure would avoid the 1000+% tax rate you have correctly described. Alternatively, you can set up a company (not a partnership). That may, in some cases, result in a somewhat lower tax burden.

  5. Can the person that wrote ‘there is hope’ and then lots of paragraphs in German. Can someone translate or summarise what was said please?

    I’m not even a German trader but terrifies me how bad governments are and want to fight this for you.

  6. Easy.

    It costs you about 500 Euros (in the first year) + 110 EUR (every year) to circumvent this. Just incorporate as a UG (Unternehmergesellschaft). You pay a few euros for the notary fee, the company register and the like. You don’t need the 25k of share capital that are required for a GmbH, but effectively you are taxed as a GmbH, the lower limit of share capital is 1 EUR. Same laws apply. Doing the balance sheet and the taxes yearly is easy if you are just trading. Add your numbers, print out your records and put it into a folder. You also have do a yearly scizophrenic ritual where you (as the CEO) sit with yourself (as the shareholder) and make a shareholders meeting. If you want to pay 2-3k per year, a tax advisor will do all those voodoo incantations for you. The 110 EUR per year is for the chamber of commerce (Industrie- und Handelskammer, IHK). Per law you have to be a member in their club and they make you pay the fees. In the 13 years I am paying, I never found out what I get for that money. Whatever.

    You can then pay yourself your earnings as a monthly salary, which will be taxed as an income (Einkommensteuergesetz). So if you have a bad year, you pay even less than the 25% Kapitalertragssteuer. On the money you keep in the company, have to keep 25% of that as a Rücklage nach GmbHG, because Mama Merkel wants you to become a GmbH. But because your salary accounts for a loss, you won’t have to. On the money you leave in the company (Bilanzgewinn), you pay about 30% (~15% Einkommensteuer and ~15% Gewerbesteuer, depending on your Gewerbesteuerhebesatz), but you can account for that as Rücklagen and Gewinnvorträge, so you don’t really have to pay that either if you are somewhat creative (which is not illegal! – I passed a Steuerprüfung without issues). You can then make a Ausschüttung to the Gesellschafter, which is taxed as a Kapitalertrag with an additional 25% + Solidaritätszuschlag for the Zonenbewohners and Geld for the Vatikan, keeping your tax at 47,5% which still only a few percent above the Höchststeuersatz. But for that, you get limited liability, which means the Margin Call will not lead to a Pfändung of your Eigenheim. Disclaimer: Not a tax advisor, but I have 3 GmbHs on the Backe and I do all the Steuerscheiß myself.

  7. It seems, but check with your tax advisor/steuer berater, that the 10k limit only applies for time limited contracts like options or futures, and from 2021 onwards. The new law is applicable this year for stocks etc., but no limit here.

    Thanks for detailed reply!
    Seems quite a hassle and expensive , but will check for next year.

  8. Any update on this issue?

    I have been following it for a while but I have not been able to find anything in the last months, thus I am not sure of what the current status is (and the end of the year is approaching).

    Moreover, my German is not that good so the idea to open a Unternehmergesellschaft could be good but worrying as I need to translate tons of stuff 🙁

  9. So far, chances it will come as intended by Mr. Scholz are low, unless he becomes chancellor.
    The Bundesrat did refuse it and give it back to the legislativ (the Bundestag).

    The law does not only violate the constitution, but also European laws (free access for all europeans to the financial markets).

  10. @Steve, I agree but since I live in Germany at the moment I will be calm only when I will see the modification or deletion of this law.
    Crossed fingers…

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