History

The Beginning

It is speculated that the SPD living forces, i.e.: Olaf Scholz, Lothar Binding & Co, were not happy with the judicial outcome from the Federal Fiscal Court (BFH or Bundesfinanzhof)

The Sentence

BFH Urteil v. 12.01.2016 - IX R 48/14 BStBl 2016 II S. 456

Which basically says:

Options which expire (effectively with a value of 0 EUR) can be considered capital losses which can be compensated against capital gains.

The Parliament Enters the Game

In 2019 the Income Tax Law was modified, and this is how it happened

Steps in 2019

First Draft: Oct 10th, 2019 - No signs of the Bindingsteuer
Second Draft: Nov 4th, 2019 - Again no signs.
First Reading in the Plenary: Nov 7th, 2019 - Some amendments / No Bindingsteuer yet
Finance Committee Meeting: Dec 11th, 2019 - Ammendment: Bindingsteuer
Second/Third Readings: Dec 12th, 2019 - and the Law is passed

Note: In this first version the losses allowance was 10,000 EUR.

Link: Bundestag - Finance Committee - Dec 11th, 2019 - Printout 19/15876

Yes, you may have noticed that the following holds true.

Only 1 day passed between the Bindingsteuer amendment and its approval

A law which was discussed well over 2 full months, had a last minute amendment of biblical proportions and nobody blinked.

It may well be that none of the voting Members of Parliament had basic school math level or even a handheld calculator nearby.

Readers are entitled to ask themselves:

"Did they actually know what they were voting?"
"Do Members of Parliament do proper due diligence on what they vote"?
"Are Members of Parliament simple party soldiers who will blindly vote anything?"

But the most incredible thing is where the Bindingsteuer was hidden, or better said: where it was buried.

Law Draft on the introduction of an obligation to disclose cross-border tax arrangements

Orignal

"Entwurf eines Gesetzes zur Einführung einer Pflicht zur Mitteilung grenzüberschreitender Steuergestaltungen"

Anyone with basic reading skills will immediately notice how the topic has nothing to do with capital gains from derivatives.

But there it was, the Bindingsteuer.

Reference: Bundestag Drucksache - Finance Committe - Dec 11th, 2019 - Printout 19/15876

Furthermore all this was apparently voted together because the CDU/CSU wanted the electro-mobility package also to pass.

What can go wrong when Members of Parliament vote blindly on law packages drafted 24 hours before and with completely unrelated topics?

This is the initial Bindingsteuer form after the sad events in December 2019. Reference: Buzer.de - Bindingsteuer Changes in 2019

A Ray of Hope: The Bundesrat (Federal Council)

The Bundesrat is the table at which all federal states of Germany sit and amongst other things, check whether the laws meet a minimum criterion. And the Bundesrat did its job.

Reference: Bundesrat Recommendations 503/1/20

On Sep. 28th, 2020, it did issue the "Recommendations 503/1/20".

Bundesrat Recommendations

Page 19:

b) Nummer 5 ist wie folgt zu fassen:

"5. § 20 wird wie folgt geändert:

"a) Absatz 4a Satz 5 wird wie folgt gefasst:

b) In Absatz 6 werden die Sätze 5 und 6 gestrichen.

Translation

b) Number 5 is to be formulated as follows:

"5. Section 20 is amended as follows:

"a) Paragraph 4a sentence 5 is to be formulated as follows:

b) Sentences 5 and 6 to be deleted in paragraph 6.

The recommendation is clear: to be deleted.

Not only was the Bundesrat requesting the removal of the atrocity, it also made strong statements about what was being introduced.

Only 3 pearls will be quoted.

Bundesrat Statements 1

Page 21:

Mit der Neuausrichtung der Besteuerung ab dem Jahr 2009 wurde – höchstrichterlich bestätigt – das Grundprinzip einer symmetrischen Berücksichtigung von Gewinnen und Verlusten innerhalb der Kapitaleinkünfte eingeführt. Die neuen Vorschriften brechen mit diesem Grundprinzip. Die Verlustverrechnungsbeschränkungen sind so restriktiv, dass sie in der Fachliteratur als ein klarer Verstoß gegen das verfassungsrechtlich maßgebende Nettoprinzip bewertet werden.

Translation

With the realignment of taxation starting from 2009, the fundamental principle of symmetric consideration of gains and losses within capital income was introduced, as confirmed by the highest courts. The new regulations break with this fundamental principle. The restrictions on loss offsetting are so restrictive that they are considered in professional literature as a clear violation of the constitutionally relevant principle of net income.

Unconstitutionality is mentioned, taxing of net income is no more and that symmetric consideration of gains and losses was confirmed by the highest courts.

That alone would be a slap in the face of anyone. But there is a lot more.

Bundesrat Statements 2

Page 22:

Faktisches Verlustverrechnungsverbot innerhalb der Termingeschäfte

Bei Termingeschäften müssen Anleger Gewinne unbegrenzt versteuern, ohne die Verluste aus ebendiesen Geschäften jenseits der 10 000 Euro-Schwelle gegenrechnen zu dürfen. Dies führt zu einer Steuer auf Verluste, deren Ausmaß von Jahr zu Jahr wächst.

Translation

Factual prohibition on offsetting losses within futures trading

In futures trading, investors are required to pay taxes on profits indefinitely, without being allowed to offset losses from the same transactions beyond the 10,000 euro threshold. This results in a taxation of losses, the extent of which grows from year to year.

Oh My God! The Bundesrat has, obviously, competent people. They read the law and immediately recognized the unlimited tax rate, the taxes on losses and the eternally growing unrecoverable Binding-Losses.

Regular taxpayers who already know and suffer it are not mad.

The Bundesrat did not stop there, because it had arguments against one of the lies for the law justification, that the Bindingsteuer would be a "Tool against speculation".

Bundesrat Statements 3

Still on Page 22:

Kein Instrument gegen Kapitalmarktspekulation

Die Neuregelung versagt auch als Instrument zur Eindämmung von Kapitalmarktspekulation. Denn „echte“ Spekulation findet meist im Zuge einer gewerblichen Tätigkeit statt und hier gelten die Beschränkungen nicht. Ohnehin ist es nicht sachgerecht, Verluste aus Termingeschäften mit „schädlicher Spekulation“ gleichzusetzen. Viele Anleger nutzen Termingeschäfte insbesondere als defensives Instrument zur Absicherung gegenläufiger Positionen. Erlittene Verluste sind dann Versicherungsprämien, die bei großen Depots durchaus beträchtlich ausfallen können. Solche vorsichtigen Anleger leisten gerade in volatilen Märkten einen Beitrag zur Stabilität

Translation

No instrument against capital market speculation

The new regulation also fails as and instrument to curb capital market speculation. Because "real" speculation mostly occurs in the course of commercial activity, and the restrictions do not apply here. Moreover, it is not appropriate to equate losses from futures trading with "harmful speculation". Many investors use futures trading specifically as a defensive instrument to hedge against opposing positions. Incurred losses then serve as insurance premiums, which can be quite considerable for large portfolios. Such cautious investors contribute to stability, especially in volatile markets.

Oh My God Number 2! The Bundesrat does also know that speculation in the markets is performed by companies and not individuals.

Furthermore, it acknowledges that derivatives are also used to protect portfolios of shares. Who would have guessed!

But in the words of Lothar Binding: "Futures traders are gamblers" and "Futures trading is a risky bet".

And the Bundesrat was Ignored

Yes, literally. No joke! The Finance Minister, Olaf Scholz, decided to show the middle finger, figuratively, and loudly scream:

"Who the fuck is the Bundesrat?"

The Reaction?

Ok, there was a reaction, and the 10,000 EUR loss allowance was raised to 20,000 EUR. Even high school lads and ladies who can already reason about the purpose, intent and fairness of laws, would immediately conclude:

But this does not change the unconstitutionality character of the Bindingsteuer.

Because it does not. The Bundesrat and the professionals do not mention the loss allowance, they address the botched concept built into the law and how it goes against the basis of constitutionality and what has been confirmed in the highest courts.

Yes, dear reader, now that you know what the reaction was, you may smile, laugh, or simply let your face show the same level of astonishment Mr. Bean showed on TV.

Final Form of the Law

Buzer.de - Bindingsteuer Changes in 2020

Again in December, this time even some days later, to give everybody for sure plenty of time to read the thingy, meditate about what the Bundesrat had said and vote against it. (/full-sarcasm-level off)

BMF Circular - Juni 2021

With the law already six months in effect, the Ministry of Finance finally obliged itself to make public what was the target of the Bindingsteuer and what whas not.

Target:

Futures
Options
CFDs

Not a target:

Certificates
Warrants

The Circular cannot be found on the website of the Ministry of Finance. It is therefore presented in two different ways:

Conclusion

The history does indeed continue, because the efforts to kill the Bindingsteuer are still alive and kicking. But formally, the "history" of how it all came to be ended, when the law turned to be effective on Jan 1st, 2021, having seen its last modification officially published on Dec 29th, 2020, with the Ministry of Finance confirming which products were affected 6 months after the fact.

This was when dark history was finally written!

Dark history

Because of the implications already laid out by the Bundesrat

Goes against the principle of taxing net income (net profit)
Goes against what was confirmed previously by the highest courts
Taxes "indefinitely" profits, i.e.: Infinite Tax Rate
Taxes Losses
Binding-Losses are eternal, grow eternally and are unrecoverable
All this can lead to private bankruptcy

And all this to get votes for electro-mobility and enacted whilst buried in a law whose target was cross-border capital control.

If this is not a very dark chapter in the history of Democracy in Germany, one would have to explain what is dark.

Now, let us imagine for a moment that the Bindingsteuer, aka "The Infinity Tax" is not declared unconstitutional.

Infinite Taxing of Everyone on Everything

Nothing would prevent the taxing of everything with an infinite tax ratea and taxing losses too.

Unlimited taxing on corporate assets could be next.

Let us repeat the mantra from the main page:

... first they came for private assets and nobody spoke up, then they came for ...