After an exceedingly long time, the German Federal Constitutional Court has finally decided and published its decision on the constitutionality of the German tax interest rate of 6% p.a. Outside of Germany, the most difficult aspect of this decision might be the fact that the tax rate is considered to be unconstitutional far interest periods starting from 1 January 2014 but it applies nevertheless until 31 December 2018 by court order.
The First Senate of the Federal Constitutional Court held that the interest incurred on back taxes and the interest paid for tax refunds pursuant to § 233a in conjunction with § 238(1) first sentence of the Fiscal Code (Abgabenordnung – AO) is unconstitutional insofar as the interest is fixed at 0.5% per month for periods from 1 January 2014.
Taxpayers incur interest of 0.5% for back taxes after the expiry of an interest-free grace period (generally 15 months). This amounts to unequal treatment of taxpayers whose taxes are only assessed after the expiry of the grace period in relation to taxpayers whose tax assessments become final during the grace period. Measured against the general guarantee of the right to equality following from Art. 3(1) of the Basic Law (Grundgesetz – GG), this unequal treatment is constitutional with regard to interest incurred from 2010 to 2013, but it is unconstitutional with regard to interest incurred in 2014. Applying a lower interest rate would be an at least equally suitable means for achieving the purpose of the law, while resulting in less unequal treatment. The interest paid to taxpayers for tax refunds pursuant to § 233a AO is also incompatible with the Basic Law. The provisions continue to apply for interest periods until 2018, but they are declared inapplicable for interest periods beginning in 2019. The legislator must enact provisions that are compatible with the Constitution by 31 July 2022.
Source Bundesverfassungsgericht
