Taxation of income from private sales of securities
Special Report of 24 April 2002. The Bundesrechnungshof considers that complete and constitutional taxation of speculative gains is not assured.
Income from private sales of securities is subject to income tax if the transaction volume exceeds €512 and if less than one year has passed between purchase and sale. The importance of such taxable income (‘speculative gains’) has increased considerably in recent years.
In the Bundesrechnungshof’s view, complete taxation in accordance with the law is not assured. In a report submitted today in the German Parliament it points out that, ultimately, it remains for the taxpayers to decide whether and in what amount they declare such capital gains in there income tax returns. The tax administration has hardly any means to identify or verify missing or erroneous data.
According to the audit evidence generated by the Bundesrechnungshof that is attributable to the following reasons:
- There is a legal provision that prevents the tax authorities from using data about bank accounts and safe custody accounts obtained through tax audits of financial institutions for verifying tax return information about yields and gains from securities.
- Since the abolition of the net worth tax, the tax administration does not have information sources of its own about private holdings of securities.
- Assessing speculative gains is especially difficult in connection with the currently prevailing collective security accounts, a form of holdings securities that requires complex calculations for determining which securities have been sold with in one year from their purchase.
On balance, the legal claim for tax payments on income derived from the private sale of securities can at this time not be enforced effectively and comprehensively. This situation encroaches upon the constitutional principle of equitable taxation.
In its report to Parliament, the Bundesrechnungshof states that the Legislature has several viable options for ensuring equitable taxation. Similar to the tax arrangements made in respect of interest income, a tax deduction at source could be provided for. The data on speculative gains available at the banks could be used as tax base. Financial institutions could be required to withhold the tax and remit it to the tax administration. Such withholding and remittance could be treated as full satisfaction of the tax liability in respect of such securities transactions. Another option would be more thorough checks as they have long since been practiced in other countries.