Effects of the decision of the Federal Constitutional Court on the level of the interest rate: Review of the tax accounts with regard to a required adjustment of the interest rate.

In its ruling of July 8, 2021, the German Federal Constitutional Court (Bundesverfassungsgericht, BVerfG) declared the statutory regulation of interest on tax arrears and tax refunds at an annual rate of 6% to be incompatible with the German Basic Law. Therefore, the previous regulation is no longer applicable for interest periods from January 1, 2019.

As a result of this decision by the BVerfG, the legislator was obliged to introduce a new regulation by July 31, 2022. This new regulation came into force on July 22, 2022. It applies to interest periods from January 01, 2019 and must be applied retroactively in all open cases. The amending law reduced the interest rate on back taxes and tax refunds to 0.15% per month and 1.8% per year, respectively, for interest periods starting January 1, 2019

In principle, all income tax, corporate income tax, sales tax or trade tax assessments that can be amended under procedural law and were issued after January 1, 2019 and also contain an interest assessment are affected by the retroactive new statutory regulation. The BVerfG's declaration of incompatibility does not, however, apply to other interest assessment cases such as deferral, evasion, suspension and litigation interest. The same applies to surcharges for late payment, which are also not affected by the BVerfG's decision.

The Baden-Württemberg tax authorities are expected to carry out an automatic review of the approximately 15 million tax accounts held on November 26, 2022 with regard to any necessary adjustment of interest

In the interest cases that can still be changed under procedural law, approximately 1.7 million amended interest notices will be issued and sent to citizens. Affected citizens receive purely (amended) notices of interest. The notice will therefore look somewhat different than usual. The main tax (income, corporate or sales tax) or the church tax and the solidarity surcharge are not listed on these notices because there are no changes in this regard. If the notice of amendment also leads to the settlement of an interest objection, the notice will contain a corresponding note

For technical reasons, printing and enveloping will take some time, so that all notices will probably not be sent out until mid-December. Any refunds will be made promptly to the bank details provided to the tax authorities. If the tax authorities do not yet have the current bank details for the refund, citizens can contact the tax office responsible for them using the contact form, for example.

Further information can also be found in the BMF letters dated July 22, 2022 and November 3, 2022.

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Effects of the decision of the Federal Constitutional Court on the level of the interest rate: Review of the tax accounts with regard to a required adjustment of the interest rate.