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14.10.2021 | KPMG Law Insights

Tax dispute – Six percent interest on taxes is unconstitutional

Six percent interest on taxes is unconstitutional

Long criticized, now declared unconstitutional: In a decision published on August 18, 2021, the German Federal Constitutional Court declares interest on back taxes and tax refunds at an annual rate of 6% unconstitutional from 2014.

For some time now, taxpayers have been unable to understand the amount of interest that the tax office charges for back taxes.
In a decision published on August 18, 2021, the German Federal Constitutional Court (Bundesverfassungsgericht, BVerfG) basically confirmed this legal perception and declared the interest on back taxes at 6% per year for interest periods from January 1, 2014 to be unconstitutional.

In order to achieve the goal of full interest, namely to compensate for the fact that taxes are assessed and due at different times for individual taxpayers, interest at a rate of 0.5% per month is no longer justified in the opinion of the BVerfG since 2014. In this regard, the BVerfG makes it very clear that the interest rate of 6% per year has been evidently unrealistic since 2014 at the latest. For interest periods prior to 2014, however, this interest rate roughly corresponded to the relevant conditions on the money and capital markets according to the decision and was therefore not unconstitutional for these periods.

The incompatibility of interest pursuant to § 233a AO with the Basic Law includes not only back taxes but also interest on refunds in favor of taxpayers.

For taxpayers affected by this decision, however, it should be noted that the BVerfG has also stated that the previous law will continue to apply to interest periods from January 1, 2014 to December 31, 2018. Only for interest periods falling in 2019 are the provisions inapplicable.

The legislature is now required to enact new legislation by July 31, 2022, which will apply retroactively to all interest periods beginning in 2019 and cover all sovereign acts that have not yet become final.

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Contact

Dr. Heiko Hoffmann

Partner
Munich Site Manager
Head of Criminal Tax Law

Friedenstraße 10
81671 München

Tel.: +49 89 59976061652
HHoffmann@kpmg-law.com

Arndt Rodatz

Partner
Head of Criminal Tax Law

Fuhlentwiete 5
20355 Hamburg

Tel.: +49 40 360994 5081
arodatz@kpmg-law.com

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