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In our blog post dated 2 September 2021 we already reported on the long-awaited decision by the Federal Constitutional Court regarding the unconstitutionality of the interest on tax claims and tax refunds, issued 8 July 2021. The Court in its ruling had obligated the legislator to adopt a constitutional new regulation by 31 July 2022 for interest periods beginning 1 January 2019. With its letter of guidance dated 17 September 2021, the Federal Ministry of Finance issues guidance on the implications of the ruling by the Court.
In its decision the Federal Constitutional Court had decided for the continuing application of the old regulations for interest periods until 31 December 2018 despite its unconstitutionality. The ruling therefore only required action by the fiscal administration for interest periods beginning 1 January 2019. In accordance with the requirements of the Federal Constitutional Court, the Federal Ministry of Finance divides its guidance into interest periods up to 31 December 2018 and from 1 January 2019.
First-time assessments of interest for tax claims and tax refunds pursuant to section 233a of the German Fiscal Code (AO) will be suspended for interest periods beginning 1 January 2019 and thus not be assessed. As soon as the legislator issues new legislation with a retroactive effect, the interest will be assessed. Final assessments will be issued for interest periods until 31 December 2018. In this regard the interest rate ruled unconstitutional by the court will still be applied.
Regarding amendments and corrections of interest assessments the same principles shall apply. Interest assessments subject to review for interest periods beginning 1 January 2019 will be suspended and only assessed provisionally. For interest periods until 31 December 2018 the interest assessments will be declared as final. Beyond this it is noteworthy that regarding all interest assessments which are already incontestable, the assessment will also be final even if the interest assessments relate to interest periods after 1 January 2019 and therefore the old interest rate will apply. However, the interest for periods after 1 January 2019 will not be enforced if not paid. It is important to note that relevant in this regard is only the interest period and not the assessment period for which the tax arises.
Consequently, the same principles also apply in cases of appeals. Appeals regarding the level of interest for periods until 31 December 2019 are to be rejected as unjustified. For interest periods from 1 January 2019 the appeal process and the enforcement is to be suspended until new legislation is passed.
As expected, the Federal Ministry of Finance has implemented the implications of the ruling by the Federal Constitutional Court accordingly. Consequently, most taxpayers will not profit from the ruling as the interest on tax claims remains unchanged for interest periods until 31 December 2018. However, interest on tax refunds does also not need to be paid back for this period. It remains to be seen, what kind of solution the legislator will opt for regarding the interest for the future. Until the new legislation is in place, the uncertainty for taxpayers will remain in any case even despite the letter of guidance.
