Litigation and default interest are taxable income

Interest that a defendant has to pay in legal proceedings is generally taxable income and is not tax-exempt compensation.

Litigation and default interest that is settled between the parties to legal proceedings results in taxable investment income. This investment income must therefore be declared by the recipient in the income tax return. The Thuringian Ministry of Finance points this out. The interest must be recorded in the KAP annex unless it is connected with other types of income and is attributable to these (e.g. in the case of commercial income or rental income).