Update: Objections to interest rate rejected by a general ruling - BMF ruling dated 29 November 2021

Federal Constitutional Court: Interest rate remains unchanged up to and including 2018

In its decision dated July 8, 2021, published on August 18, 2021, the German Federal Constitutional Court ruled that an interest rate of 0.5% per month violates the constitutional right to equal treatment. However, the interest rate will continue to apply for interest periods up to and including December 31, 2018. More information is available here.

Tax administration: Appeals and amendment requests regarding the interest rate before 2019 will be rejected

For interest periods prior to 2019, the Federal Ministry of Finance (BMF) had already instructed the tax offices in a letter dated September 17, 2021, to reject as unfounded any objections to interest assessments that are based on the unconstitutionality of the interest rate applied. Now the tax authorities are taking an even simpler approach: on November 29, 2021, the highest tax authorities of the federal states issued a general ruling which states that any admissible objections, pending on that date, regarding the assessment of interest for interest periods before January 1, 2019, will be automatically rejected by the tax offices without any action.

The general ruling also rejects any other admissible applications for an amendment of the interest assessment - outside of an appeal proceeding - which are pending on November 29, 2021.

Special attributes of the general ruling

A general ruling replaces individual objection decisions of the tax offices and thus serves the principle of procedural economy. The persons concerned will not be notified individually, but the information is published in the Federal Tax Gazette I (BStBl. I). A general ruling is an administrative act and action can be brought against it before a tax court, similarly as with an individual objection. A general ruling is deemed to have been made public on the day following the publication of the corresponding issue (number) of the Federal Tax Gazette I. The one-year extended period for filing a lawsuit starts on the following day. The general ruling of November 29, 2021 was published in number 22 of the Federal Tax Gazette I issued on December 8, 2021. The period for filing a lawsuit therefore began on December 9, 2021 and ends on December 8, 2022.

Scope of the general ruling

The general ruling only covers interest calculation periods ending no later than December 31, 2018. Insofar as a pending objection or amendment application also relates to subsequent interest calculation periods, the general ruling will have no effect. This means that the general ruling will then only contain a partial objection decision or a partial rejection of the amendment application. The tax office will therefore continue the proceedings on the objection or the amendment application after a new legal regulation on the interest rate has been passed. Objections and applications for amendment of the interest assessments that are (also) based on other grounds than the unconstitutionality of the interest rate applied are (insofar) not rejected by the general ruling.

It should also be noted that the general ruling does not extend to interest on arrears relating to the trade tax.

Prospects of success for a lawsuit

As a result of the Federal Constitutional Court's continuation order, an action before the German fiscal courts based on the unconstitutionality of the interest rate has no prospect of success. However, in the area of VAT harmonised by the EU VAT Directive, the European law principle of proportionality and the principle of the neutrality of VAT may also give rise to doubts about the legality of the interest rate applied. This could be the basis for an action before the tax court, suggesting a referral to the European Court of Justice.

Supplementary Federal Ministry of Finance (BMF) letter dated December 3, 2021, for interest periods starting in 2019

With the BMF letter dated December 3, 2021, the financial administration supplements the BMF letter dated September 17, 2021. On the one hand, the letter contains clarification on how to deal with objection proceedings against the provisional assessment of interest on arrears and refunds for interest periods as of January 1, 2019. These proceedings and the enforcement of the assessments are also to be suspended. On the other hand, the new BMF letter contains instructions on the provisional assessment of interest on tax evasion for interest periods beginning January 1, 2019, insofar as interest on arrears assessed for the same interest periods is to be credited.

(Dated: 27.01.2022)