Interest tax office unconstitutional again?

Federal Finance Court has constitutional doubts about 6% suspension interest

Frankfurt am Main

October 6, 2024

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If there is a dispute over the amount of tax, this does not, in principle, mean that the disputed tax amount does not have to be paid. Rather, if the dispute over the amount of tax is later resolved in favor of the taxpayer, the taxpayer will receive a refund of the overpaid tax. This tax refund will then also bear interest in favor of the taxpayer, currently (since January 1, 2019) at 0.15% per month, or 1.8% per annum.

However, the taxpayer can also combine an objection to a tax assessment with a request for a stay of enforcement. If serious doubts arise regarding the legality of the disputed tax amount, the amount must initially not be paid until the tax amount has been comprehensively examined and clarified, i.e., the appeal procedure has been concluded through a decision, withdrawal, or remedy. If this procedure is unsuccessful, the suspended tax amount must be paid. This is then subject to suspension interest. The statutory rate is currently set at 0.5% per month, or 6% per annum.

The Federal Finance Court has now expressed constitutional doubts about the level of the suspension interest.

It recognises an unconstitutional unequal treatment between taxpayers who apply for a stay of execution and thus run the risk of paying 0.5% per month in interest in the event of an unsuccessful appeal, compared with taxpayers who pursue the appeal but pay the disputed tax amount.

The underlying judgment concerned suspended interest for the period from 1 January 2019 to 15 April 2021. The Federal Fiscal Court has now referred this constitutional question to the Federal Constitutional Court for a decision by order of 8 May 2024 (case number VIII R 9/23).

The Federal Fiscal Court considers a rate of 0.5% per month for interest on suspension of execution during the relevant period to be unconstitutional. At least during a sustained period of structurally low interest rates, the statutory interest rate is clearly no longer necessary to capture the liquidity advantage typically achieved through a delayed payment.

TaxPro recommendation!

The Federal Constitutional Court's decision now remains to be seen. Corresponding interest assessments should be kept open procedurally. Taxpayers are therefore advised to file an objection against the tax office's interest assessments.