Application of the Neutrality Principle to Late Payment Interest in Value Added Tax

• The Federal Constitutional Court has declared late payment interest for periods from 1 January 2014 to be incompatible with Article 3 of the Basic Law (German Constitution), but allowed a transitional period until 31 December 2018 for reasons of fiscal budget protection.
• This acceptance of excessive tax interest until the end of 2018 does not eliminate potential challenges under EU law against the German VAT interest.
• The imposition of late payment interest for VAT due to a delay in deducting input tax caused by the tax office does not violate the principle of proportionality under EU law, as it is not a punitive measure and can be corrected through a discretionary decision.
• The principle of neutrality in VAT does not apply to the imposition of late payment interest.
• In cases where both late payment interest and refund interest are imposed for the same circumstances, the tax office must offset the amounts.

Source: datenbank.nwb.de

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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