German Federal Fiscal Court considers suspension interest of 0.5 % per month to be unconstitutional

In principle, appeals and lawsuits do not have a suspensive effect in tax law. Under certain circumstances, however - particularly if there are doubts about the legality of the contested assessment - this can be ordered separately by the tax office or tax court by means of a suspension of enforcement. However, the deferral of payment is subject to interest if the appeal is ultimately unsuccessful and the taxpayer has to pay the tax “retrospectively”. The German law provides for interest of 0.5 % per month, i.e. 6 % per year, for the duration of the suspension and on the suspended tax amount (Section 237 in conjunction with Section 238 (1) sentence 1 of the German Fiscal Code).

Although the German Federal Constitutional Court declared the general full interest rate at this level to be incompatible with the principle of equality in the German Basic Law in its ruling of July 8, 2021 (1 BvR 2237/14, 1 BvR 2422/17) from January 1, 2014 and ordered a new statutory regulation for interest periods from January 1, 2019 by applying a continued validity clause until December 31, 2018, it did not extend this to suspension interest and other partial interest rates. The German Federal Fiscal Court has now had the opportunity to comment on this.

In the case in dispute, the tax office had granted a suspension of the contested income tax assessment in 2012, but the appeal was unsuccessful. Accordingly, the tax office assessed suspension interest of 0.5 % per month for 78 months, including the period from January 1, 2019 onwards. The taxpayer appealed against this.

In the opinion of the German Federal Fiscal Court, the statutory interest rate of 6 % per year is clearly not (or no longer) necessary, at least during the structural phase of low interest rates that will continue in 2019 and afterwards, in order to skim off the liquidity advantage that can typically be achieved through a later payment. In addition, since January 1, 2019, interest on back payments has only been calculated at an interest rate of 0.15 % for each month, i.e. 1.8 % per year. Taxpayers who have to pay interest on arrears because their tax assessment has resulted in a difference and taxpayers who owe interest because they have not paid the tax following an adjustment are treated unequally in this respect. This is another reason why the proposed spread in interest rates currently provided for in the law is not constitutionally justified.

The German Federal Fiscal Court therefore considers the statutory interest rate of 0.5 % per month, i.e. 6 % per year, for suspension interest - at least for periods from 2019 onwards - to be incompatible with Article 3 (1) of the German Basic Law, i.e. unconstitutional. It therefore referred the matter to the Federal Constitutional Court for a ruling in its decision dated May 8, 2024 (case no. VIII R 9/23).