The approach to loss deduction is different for corporations and
partnerships. According to the principle of separation, a corpo-
ration’s losses are recognized at the level of the corporation and
may not be allocated to the shareholders. Profts and losses
generated by a partnership are directly allocated to the partners.
Hence, losses from commercial business activity may generally
be offset against the respective partner’s other income. If the
partner generates an overall negative income, such income may
either be carried back to the previous year or carried forward; in
such case the same ceilings apply as set out below for corpora-
Special loss deduction rules apply to partners in specifc part-
nership forms. Thus, limited partners and other partners with
comparable liability are subject to a separate restriction regarding
tax losses. Under these rules, losses from a partnership (neg-
ative commercial income) can only be offset against profts of
the same partnership if the limited partner’s capital account is
negative or becomes negative as a result of the loss allocation.
In effect, the amount of losses which can be offset is limited to
the amount of the partner’s capital account.