Improved minimum threshold from 2017 for taxpayers

If you forget to include expenses in your tax return, you can still claim them after receiving the tax assessment notice by lodging an objection. However, if the tax is reduced by less than 10 Euro (minimum amount) in your favour, the tax office will refuse to make a change. The reason? The Small Amounts Regulation!

According to the Small Amounts Regulation, "income tax assessments are only changed or corrected if the deviation from the previous assessment is at least 10 Euro" (KBV from 1.1.2002). This means that changes are excluded not only to the advantage but also to the disadvantage of the taxpayer.

In 2011, the Federal Fiscal Court confirmed that if a tax change is less than 10 Euro, the tax assessment will not be changed at all - neither to the disadvantage nor to the advantage of the taxpayer (BFH ruling of 16.2.2011, X R 21/10).

Currently, with the "Act to Modernise Taxation Procedures" of 18.7.2016, the Small Amounts Regulation has been changed in favour of taxpayers from 1.1.2017: In future, a tax assessment will only be changed to the disadvantage of the taxpayer if the new tax amount is at least 25 Euro higher. However, to the advantage of the taxpayer, the tax assessment will be changed as before if the new tax amount is only 10 Euro lower. Furthermore, housing premiums will only be reclaimed if the reclaim amount is at least 25 Euro - instead of the previous 10 Euro.

Improved minimum threshold from 2017 for taxpayers

How can you contest a late fee?

Your tax return must be submitted to the tax office on time.

For taxpayers without professional advice, the deadline is usually 31 July of the following year. With tax advice, the deadline is extended.

→ If the return is submitted late, a late filing penalty may be imposed.

When can you contest it?

There are two types of late filing penalties:

1. Discretionary penalty by the tax office

In many cases, the tax office decides whether to impose a penalty.

A penalty can be avoided or reduced if:

• the delay can be plausibly explained (e.g. illness)
• the submission is only slightly late
• no or only small amounts of tax are owed

→ The tax office must take all circumstances into account.

Important: If discretion was not exercised correctly, you can lodge an appeal.

2. Statutory penalty

After certain deadlines, the late filing penalty is automatically imposed.

It amounts to:

• 0.25% of the assessed tax for each month of delay
• at least 25 Euro per month

→ In these cases, a waiver is only possible to a limited extent.

In the case of a tax refund or 0 Euro tax, the tax office can waive the penalty (§ 152 AO).

Special case: Complicated or unclear legal situation

In individual cases, a late filing penalty may be inadmissible if the tax situation was particularly unclear or legally complex (Finance Court of Saxony-Anhalt, judgement of 22.02.2024, 2 K 628/22). 

This may apply if, for example:

• the legal situation was complex or unclear
• even experts have different opinions
• a decision is only made by the courts

→ In such cases, it may be unreasonable to impose a late filing penalty.

→ Courts have ruled that the tax office must consider such circumstances.

Example

• A penalty may be imposed in the case of additional payments.
• In the case of a refund, the penalty may be waived – but not necessarily.
• In the case of an unclear legal situation, a penalty may be inadmissible.

What can you do?

• Apply for an extension if you cannot meet the deadline.
• Submit a justification if the delay is excusable.
• Point out a complicated or unclear legal situation.
• Lodge an appeal if you consider the penalty to be unjustified.

→ A good justification significantly increases the chances of success.

In summary

• Late filing penalties arise if the submission is late.
• In some cases, the tax office decides at its discretion.
• In certain cases, the penalty is statutory.
• In the case of an unclear legal situation, a penalty may be inadmissible.
• You can lodge an appeal against a penalty.

How can you contest a late fee?

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).  

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