Assessment – interest on arrears – from 2015 – unconstitutional

For tax refunds

In the case of income tax, corporate income tax, trade tax and value-added tax assessments, full interest is charged (Section 233a in conjunction with Section 238 of the German Fiscal Code (AO)). Thereafter, corresponding refunds and subsequent payments will accrue interest at a statutory rate of 0.5% for each full month after a waiting period of regularly 15 months.

In the past

there have been increasing opinions that the interest rate of 6% per annum is no longer appropriate, particularly in light of the current market interest rate.

In a new decision

of the Federal Fiscal Court, the current practice of charging interest on tax arrears has now been called into question for the first time by the highest court. In the court’s view, there was no factual justification for the statutory level of the interest rate. The (original) purpose of interest, to skim off the benefit of use resulting from the fact that the taxpayer could dispose of a sum of money during the period of non-payment of the tax, was not realistic in view of the low level of interest rates. Moreover, in times of low interest rates, the unrealistic assessment of the amount of interest acts as a legally groundless surcharge on the tax assessment. Thus, there were “serious constitutional doubts as to whether the interest rate complied with the prohibition of excessiveness arising from the principle of the rule of law (Article 20 (3) of the Basic Law)”.

The Federal Fiscal Court

Calls on the legislature to review whether the interest rate should be reduced.

With reference to this decision, any interest assessments concerned can be challenged and a corresponding suspension of enforcement for assessment periods from 2015 onwards can be obtained.

(Further comments & information on this can be found in our information letter 07/2018 under the item 1.)