If tax payments exceed the final tax liability, the excess tax paid is refunded to the taxpayer with the interest of 0.15% per month (reduced from 0.5% per month). On 21 July 2022, Germany published an amendment to its Tax Code to give effect to the change in interest rate. The reduced rate is retroactively applied to all interest periods from 1 January 2019 onwards and to all acts of public authority that have not yet become final.
Further, it is provided that the appropriateness of this interest rate is to be evaluated every two years, taking into account the development of the base interest rate, with effect for subsequent interest payment periods, for the first time on 1 January 2024.
In connection with the change in interest rate, on 22 July 2022, the German Ministry of Finance (BMF), published two letters that broadly provide the following guidance:
- The first letter provides general guidance on the impact of the retroactive change in interest rate; and
- The second letter provides specific guidance on transitional rules in relation to interest calculation for periods beginning from 1 January 2019 onwards for pending cases. It is also clarified that for interest periods up to 31 December 2018, the determination of interest is final for completed cases.