SteuerGo FAQs

Are interest payments on tax arrears of 6% p.a. constitutional?

Anyone receiving their tax assessment later than 15 months after the tax year must pay additional interest on tax arrears. This interest on arrears is 0.5 percent per full month. Conversely, those receiving a tax refund receive corresponding interest on refunds (§ 233a AO).

The interest rate is stipulated by law (§ 238 AO). An interest rate of 6 percent p.a. is extraordinarily high today, given that market interest rates have been close to zero or even negative for several years. In comparison, the tax office's interest rate of 6 percent today represents a striking imbalance between performance and consideration, thus constituting usury (§ 138 BGB). Usury occurs when the interest rate demanded is twice as high as the comparable market interest rate. Tax law has long lost any connection to current market interest rates.

What has happened so far?

• In July 2014, the Federal Fiscal Court ruled that the statutory interest rate of 6 percent per year was (still) not unconstitutional until March 2011 (BFH ruling of 1.7.2014, IX R 31/13). The BFH also deemed the interest rate constitutional in 2013 (BFH ruling of 9.11.2017, III R 10/16).
• Finally, in April 2018, the Federal Fiscal Court could no longer evade a reality-based decision after several "unrealistic" rulings: The highest financial judges finally expressed "serious" doubts about the constitutionality of the 6 percent interest rate, but only for interest periods from 2015! (BFH decision of 25.4.2018, IX B 21/18).
• Another senate of the BFH also admitted serious doubts about the constitutionality of the 6 percent interest rate and agreed with this view. Even better: The presumed unconstitutionality is to apply to interest periods from November 2012 (BFH decision of 3.9.2018, VIII B 15/18).
• Since mid-June 2018, the tax authorities have granted a suspension of execution in the case of tax arrears for assessed interest on arrears. This meant that taxpayers did not have to pay the interest on arrears for the time being. However, this only applied if you submitted a corresponding application, preferably in the form of an objection, to the tax office.
• From May 2019, tax offices will issue all tax assessments with interest on arrears or interest on refunds of 0.5 percent per year with a provisional note in accordance with § 165 para. 1 sentence 2 no. 3 AO (BMF letter of 2.5.2019, BStBl 2019 I p. 448).

Who is affected by the change in tax interest?

Since May 2019, all tax assessments regarding tax interest have included a provisional note. Therefore, after a legal amendment, the tax offices must change these tax assessments on their own initiative (BMF letter of 2.5.2019, BStBl 2019 I p. 448). Anyone who had to pay tax arrears and consequently interest on arrears for periods from 2019 will receive money back. Conversely, it is also likely that anyone who received a tax refund and thus interest on refunds for periods from 2019 will have to repay part of it.

It remains to be seen whether the tax authorities will actually dare to collect the unconstitutional interest. In fact, the Fiscal Code protects the taxpayer's trust in a tax assessment issued in their favour. However, the tax authorities have already indicated that they consider a breach of this principle permissible in the specific case of interest on refunds. And indeed: According to § 31 para. 2 of the Federal Constitutional Court Act, a decision of the Federal Constitutional Court has the force of law in certain cases.

In this respect, the position of the tax authorities is not entirely unfounded. Attention: It will also be critical for those who applied for a suspension of execution regarding tax interest for periods before 2018: They must expect the tax authorities to demand the "suspended" interest on arrears. Again, it will be interesting to see whether the tax authorities actually demand unconstitutional interest.

What will the interest rate be in the future?

The Federal Constitutional Court does not comment on this; it is up to the legislator to determine. Due to the upcoming federal elections and the expected lengthy formation of a government, nothing is likely to be decided on the subject of "tax interest" this year. The FDP has repeatedly unsuccessfully requested that the interest rate be 1/12 of the base rate per month in accordance with 247 BGB, at least 0.1 percent (BT-Dr. 19/19158 of 14.5.2019; BT-Dr. 19/19601 p. 29).