Tax interest is unconstitutional

The statutory interest rate of 6 % for interest on arrears and refunds has been unconstitutional since 2014.

Following the Federal Fiscal Court, the Federal Constitutional Court also considers interest on tax arrears and refunds at a rate of 6 % or 0.5 % per month to be unequal treatment of taxpayers whose tax is not assessed until after the interest-free grace period of 15 months has expired. The Federal Constitutional Court considers this unequal treatment to be still constitutional for interest periods from 2010 to 2013, but unconstitutional as of 2014.

Despite this unconstitutionality from 2014, the court still allows the application of the previous law for interest periods until the end of 2018. From 2019 onwards, on the other hand, the provisions are in principle inapplicable, and the legislator must adopt a new provision that complies with the constitution by July 31, 2022.

Because politics must first reorganize itself after the Bundestag elections, this new regulation will not come so quickly. The Federal Ministry of Finance has therefore issued regulations for the transitional period until a new constitutional regulation comes into force. In this way, the Treasury wants to accommodate the interests of taxpayers and avoid another flood of appeals.

Under these provisional rules, the tax offices will initially refrain from assessing interest on arrears and refunds for interest periods from January 1, 2019. The suspended interest assessment will then be made up for as soon as the uncertainty is eliminated by a retroactive amendment to the law. In contrast, the tax offices will finally determine interest on arrears or refunds for interest periods up to December 31, 2018.

When amending or correcting tax assessments that would also affect the assessment of interest, the tax offices are to initially refrain from recalculating and reassessing interest for interest periods starting in 2019, while definitively assessing it for periods up to December 31, 2018. The Ministry also regulates other special cases and provides detailed explanatory texts that the tax offices are to include in newly issued or amended tax and interest assessments.

The tax offices are to reject objections for periods up to the end of 2018 unless the objection is withdrawn. For periods from 2019 onwards, the objection procedure and enforcement will be suspended until new legislation is passed. Insofar as the enforcement of interest assessments for interest periods up to the end of 2018 has been suspended to date, the tax offices are now to end the suspension of enforcement.

In these transitional provisions, the Ministry of Finance also states that the decision of the Constitutional Court expressly does not refer to deferral, evasion and suspension interest. Nonetheless, it can be assumed that a new statutory regulation will also newly regulate these interest situations, albeit possibly not retroactively from 2019.