Germany – The German Federal Fiscal Court doubts the constitutionality of additional payment interest

The German Federal Fiscal Court (Bundesfinanzhof – BFH) doubts the constitutionality of supplementary payment interest of 1.5% for interest periods from 2015, and has therefore granted a suspension of execution in a summary procedure.

In the event of a dispute, the tax office (Finanzamt – FA) initially set the income tax to be paid by the applicants for 2009 at € 159,139. Following an external audit, the FA changed the income tax assessment to € 2,143,939 on 13 November 2017. A tax of € 1,984,800 had to be paid in arrears. The tax office also demanded additional interest of € 240,831 for the period from April 1, 2015 to November 16, 2017 in the interest statement associated with the tax assessment. The applicants request the suspension of execution of the interest notification, since the interest rate of 1.5% for each month is unconstitutional. The FA and the tax court rejected this.

In contrast, the Federal Fiscal Court has granted the application and suspended the execution of the interest decision in its entirety. According to the Federal Fiscal Courts resolution, there are serious doubts as to the constitutionality of the interest rate for interest periods from 2015 onwards. The legally fixed interest rate significantly exceeds the appropriate framework of economic reality, since a low market interest rate level had consolidated structurally and sustainably during the period in dispute.

There was no factual justification for the statutory interest rate in the required summary audit. Due to the automation in the tax administration based on modern data processing technology, considerations such as practicability and administrative simplification could no longer prevent an adjustment of the unchanged interest rate since 1961 to the respective market interest rate or to the base interest rate of the German Civil Code. There is no justification for the interest rate. The purpose of the obligation to pay interest is to absorb at least part of the benefit of use which the taxpayer receives by being able to dispose of a sum of money during the period of non-payment. This objective was not achievable for the period of the dispute because of the structural low interest rate level in a typical case and thus did not support the unrealistic assessment of the interest rate level.

Further, there are serious constitutional doubts as to whether the interest rate corresponds to the prohibition of excesses resulting from the rule of law principle. In times of structural low interest rates, the unrealistic assessment of the level of interest has the effect of an unjustified surcharge on the tax assessment.

Moreover, the lawmaker is required by the constitution to examine whether the original decision on the legal amount of additional payment interest should be maintained even if the low interest level is permanently fixed or whether the interest amount should be reduced. The lawmaker himself had recognized this, but had nevertheless done nothing to this day, although he had amended comparable interest regulations in the Tax Code and the Commercial Code to this effect.

To sum up, it is possible to request a suspension of execution of interest payments for the period 2015 onwards. However, if the Federal Constitutional Court considers the amount of interest to be in conformity with the constitution (a decision should be made in 2018), the interest payments for the period 2015 onwards would have to be paid anyway and on top of that, there is also the possibility that interest on suspension will be charged as well.


Bildquelle: Uwe Wattenberg  /

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