The German Federal Constitutional Court has issued a release on its findings that per annum interest of 6% on back taxes and tax refunds is unconstitutional from 2014 onwards. According to the release, the First Senate of the Federal Constitutional Court issued the Order of 8 July 2021 1 BvR 2237/14, 1 BvR 2422/17, 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 (Abgabenordnung – AO) 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 Court has ordered the legislator to enact new provisions by 31 July 2022, which must apply retroactively to all interest periods from 2019 onwards and to all acts of public authority 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.