In its judgment of 25 November 2025, VIII R 15/22, the Federal Fiscal Court (Bundesfinanzhof, BFH; not yet published) has restricted the application of the partial exemption to investment fund losses in favour of investors. As a result, in certain cases investors may deduct losses incurred on the sale of fund units from 2018 onwards in full for tax purposes, irrespective of any applicable partial exemption rates.
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1. Background

The German Investment Tax Act (Investmentsteuergesetz, InvStG) was fundamentally reformed with effect from 1 January 2018. In order to draw a clear dividing line between the old regime (up to 31 December 2017) and the new regime (from 1 January 2018), the following rules were introduced:

• All legacy units in investment funds are deemed to have been sold on 31 December 2017 and reacquired on 1 January 2018 at the same value (sec. 56 (2) InvStG 2018).
• This gives rise to a "deemed capital gain" (or loss) under the old law, even though the units were not actually sold.
• From 2018 onwards, these fund units are treated for tax purposes as a "new acquisition" under the new statutory rules, in particular with the fund itself becoming subject to tax and with the partial exemption and the advance lump sum (Vorabpauschale) applying.

2. Facts of the case decided by the BFH

• A taxpayer held units in an investment fund which had been acquired in 2015 and 2016.
• In 2018, the taxpayer sold these units – in economic terms at a gain in the mid three-digit range.
• In accordance with the law, the deemed gain as at 31 December 2017 (deemed sale proceeds as at 31 December 2017 less actual acquisition costs and various adjustment provisions) was calculated under the InvStG 2004 for the purposes of determining the taxable gain.
• The calculation for the period from 1 January 2018 until the sale (actual sale proceeds less deemed acquisition costs) resulted in a computational loss, to which the partial exemption rate for equity funds was applicable.
• Because the new loss arising from 2018 onwards was only taken into account on a pro rata basis, the final withholding tax ultimately exceeded the gain actually realised in economic terms.

The taxpayer challenged this tax consequence. Does this partial exemption (or, conversely, the mirror-image partial disallowance) also apply to a loss which, in economic terms, ultimately results from changes in value prior to 1 January 2018 that had already been segregated by way of the "deemed sale" as at 31 December 2017?

3. Reasoning of the BFH

The BFH first makes it clear that, in principle, it has no constitutional concerns regarding the basic concept of separating the old and the new regime. Changes in value from the period before 2018 belong to the old regime; changes in value from the period after 2017 belong to the new regime.

Accordingly, the partial exemption belongs exclusively to the new regime:

• The partial exemptions (sec. 20 et seq. InvStG 2018) are expressly rules of the new law applicable from 2018.
• They are intended to apply only to such gains or losses as arise from 1 January 2018 onwards.

According to the BFH, the structure and the wording of the law are decisive: there is no statutory basis for applying the partial exemption retroactively to changes in value that arose before 2018 and that had already been segregated by means of the statutory fiction. Moreover, the teleological reduction is also required on constitutional grounds.

4. Consequences for losses from an actual disposal after 2018

• Where the investor sells the "newly acquired" units at a loss after 1 January 2018, a distinction must be drawn for tax purposes
• That portion of the loss which, in economic terms, results from reductions in value after 1 January 2018 falls within the new regime; here, the partial exemption rules may apply (i.e. restricted use of losses).
• Changes in value predating 2018 have already been "settled" under the old regime; the partial exemption does not apply to them.

5. What does this mean for you as an investor (in simplified terms)?

• The investment tax reform effective 1 January 2018 introduced an artificial cut-off date (31 December 2017) on which all fund units were treated for tax purposes as if they had been sold and immediately repurchased.
• Gains and losses up to 31 December 2017 are assessed under the old law.
• The partial exemptions (e.g. 30% for equity funds) apply only to losses which, in economic terms, are also attributable to the period from 1 January 2018 onwards.
• Losses which are essentially attributable to the transition or to the development in value before 2018 are therefore fully deductible.
• This does not only affect losses on fund units held as private assets. Fund units held as business assets in particular are subject to higher partial exemption rates (partial exemption rates of up to 80%), which makes it especially worthwhile to take a closer look at fund losses in this context.

6. Outlook

It remains to be seen whether the legislator will supplement the wording of the law and continue to face criticism regarding a lack of constitutionality, or whether the Federal Ministry of Finance (BMF) will implement the BFH judgment, for example by way of a circular. The further question also arises whether, for reasons of consistency, the same tax consequences would not then have to be drawn in cases in which a deemed loss and a partially exempt gain arise: full taxation of the gain from 2018 onwards which, in economic terms, is still attributable to the period before 2018 – to the detriment of taxpayers.

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7. Recommended action

The first step is to examine whether the taxpayer is affected by such circumstances at all:

• Fund units held as private assets: sale from 2018 onwards of fund units acquired after 2008 and before 2018
• Fund units held as private or business assets subject to a partial exemption rate from 2018 onwards
• Fund units held as private or business assets: determination of a deemed capital gain as at 31 December 2017 and of a loss from 2018 onwards

For this purpose, the taxpayer must review their bank documentation (income statements, tax reports, individual settlement statements and tax notifications relating to individual disposals). The banks' tax certificates alone do not provide any indication of such circumstances.

Where there is any doubt, determining these circumstances involves considerable effort. Cost-benefit considerations should therefore be taken into account. For fund units held as business assets, we offer digital automated securities accounting and can respond to the new case law quickly and easily.

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