Skip to content

You are here:

Unconstitutionality of excessive interest on tax arrears/refunds – consequences from the tax administration

In July 2021, the Federal Constitutional Court (Bundesverfassungsgericht, BVerfG) classified the statutory interest on tax arrears and tax refunds of 6% per year as unconstitutional as of 2014. Accordingly, the local tax offices may only continue to apply the 6% rate for interest periods up to and including 31.12.2018. For the subsequent interest periods, the BVerfG has committed the legislative body to come up with a new regulation that is compatible with the constitution. Lower Saxony’s State Office for Taxes (Landesamt für Steuern Niedersachsen, LStN) expressed its view on the ruling in September already (recently confirmed in a circular of 29.11.2021 by the Federal Ministry of Finance (Bundesministerium der Finanzen, BMF).

According to this, the BVerfG ruling only affects interest on tax arrears and tax refunds and not however interest relating to tax deferrals, tax evasion, tax suspension and interest during pendency of legal action. That is why the local tax offices will once again immediately reject any applications filed because of the unconstitutionality of such interest. Ultimately, this interest will have to be paid by the taxpayer. Assessment notices for interest for the period up to 31.12.2018 that, up to now, were still provisional on account of the pending BVerfG ruling, will now have to be regarded as being final. Amounts that had been suspended up to now will have to be paid. The local tax offices are currently no longer allowed to require ‘new’ interest payments for the period starting from 2019; instead, they will have to wait and see what new rules the legislator will make on the interest chargeable on subsequent tax payments. The Bundestag [lower house of German parliament] and Bundesrat [upper house of the German parliament] have until 31.7.2022 to do this. They can also bring the new rules into force with retroactive effect starting from 2019. Final assessment notices for the interest payable that cannot be amended any more for periods starting from 2019 will generally not be affected by this because of the so-called administrative finality of such assessment notices.

According to the guidelines from the LStN, until such time as the new rules have been put in place, for the period from 2019, local tax offices should proceed as follows with provisional effect:

(1) Assessment notices, which have to be newly issued, for the setting of interest on arrears or refunds for the first time will, from the outset, be provisionally set ‘to zero’ with respect to this interest until the legislator has created a replacement regulation and the local tax office can then apply this to the cases (if necessary, retroactively).

(2) Assessment notices that were issued prior to the BVerfG ruling and which are provisional will generally continue to remain provisional so long as none of the involved parties ‘touch’ them. As soon as the legislator has made the replacement regulation, the local tax offices will make these changes autonomously on their own initiative and, generally, without any further ‘pushing’ on the part of the taxpayer.

(3) In the case of assessment notices that were issued prior to the BVerfG ruling and now - for whatever reason - have to be amended, what matters here is whether the amendment will result in a subsequent payment or a refund for the taxpayer. In the case of a subsequent payment, the local tax office will provisionally set any further amount of interest in this respect ‘to zero’ (as in the case of new notices of assessment). In the case of a refund, the local tax office will reimburse interest, too, insofar as it was overpaid.

Please note: On this topic, please see also the ruling of general application by the Länder [Federal States] of 29.11.2021; we were unable to go into detail about this because of the copy deadline for this newsletter. This ruling confirms the differentiated approach, described above, for assessment notices for interest up to 31.12.2018 or from 2019 onwards.

Back to top of page