On 18 August 2021, the Federal Constitutional Court has published a press release stating that interest of 6% pa on tax back payments and tax refunds from 2014 is unconstitutional. Earlier, the First Senate of the Federal Constitutional Court issued the Order of 8 July 2021, holding 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 is unconstitutional insofar as the interest is fixed at 0.5% per month for periods from 1 January 2014.
The 0.5% per month interest generally applies after a grace period of 15 months. According to the Court, 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. Further, the Court held that interest paid to taxpayers for tax refunds pursuant to § 233a AO is also incompatible with the Basic Law.
As a result, the legislator is now required to enact a constitutional new provision by 31 July 2022, that retroactively extends to all interest periods beginning in 2019 and covers all tax assessments that have not yet become final, while retroactive application of new provisions is not required in respect of interest incurred from 1 January 2014 to 31 December 2018.
