Germany: Interest rate of 6% for tax deficiencies, refunds held unconstitutional

Levying interest on tax deficiencies and tax refunds is held unconstitutional by the German Federal Constitutional Court

Interest rate of 6% for tax deficiencies, refunds held unconstitutional

The German Federal Constitutional Court (BVerfG) held that levying interest on tax deficiencies and tax refunds pursuant to § 233a of the German tax law (AO) is unconstitutional, to the extent that the calculation of interest for “interest periods” (not the assessment period) as from 1 January 2014 was made on the basis of an interest rate of 0.5% monthly because over time, this rate of interest has shown itself to be evidently unrealistic.

  • However, prior law may continue to be used for interest periods up to and including 2018.
  • For interest periods from 2019, the provisions are not applicable.
  • The legislature is required to draw up new rules that are compatible with the constitution by 31 July 2022, that would then be retroactively applicable for interest periods from 2019.

The German tax authorities on 17 September 2021 commented on the court decision.

KPMG observation

The Federal Constitutional Court only had to review § 233a AO from the point of view of its constitutionality, and not according to measures for harmonized value added tax (VAT) within the EU. It can be derived from jurisdiction of the Court of Justice of the European Union (CJEU) and the overriding considerations of EU law that in instances when there is a rigid accrual of interest—regardless of possible negligence on the part of the taxpayer and whether a tax damage has actually occurred—a determination of interest according to § 233a AO could be contrary to EU law. In such cases, it needs to be examined whether legal remedies must be obtained or lodged, or whether applications for remedial action may need to be made.


The provisions of § 233a AO regulate the accrual of interest on tax deficiencies and tax refunds. The interest relates to the period between the tax arising and being assessed (the principle of full accrual of interest). The interest accrual begins after a grace period of generally 15 months. In accordance with § 238 (1) AO, interest is set at a rate of 0.5% for each full month of the interest accrual period (or 6% annually). Interest is only realized on the exhaustive list of taxes set out in § 233a AO—income tax, corporation tax, capital tax, VAT, and trade tax. The decision of the Federal Constitutional Court was in relation to corporation tax, but the decision also applies for the other types of tax.

Read an August/September 2021 report prepared by the KPMG member firm in Germany.

Other recent VAT developments that may affect businesses in Germany include the following items:

  • CJEU submission on operating equipment (German Federal Tax Court (BFH) resolution of 26 May 2021, V R 22/20)
  • VAT exemption for the operation of refugee accommodation and homeless shelters (BFH decision of 24 March 2021, V R 1/19)
  • Stating the time or period of supply in an invoice (German Federal Ministry of Finance (BMF) guidance of 9 September 2021 – III C 2 - S 7280- a/19/10004 :001)
  • Invoicing by means of self-billing for unfulfilled supplies (BMF guidance of 19 August 2021 – III C 2 - S 7283/19/10001 :002)
  • Determination of the place of supply of miscellaneous services in accordance with § 3a (3) no. 5 UStG – provision on non-objection for transactions before 1 January 2022 (BMF guidance of 19 August 2021 – III C 2 - S 7117- b/20/10002 :002)
  • Draft of BMF guidance on consignment stock
  • Questionnaire on the VAT registration of companies that are residents abroad (BMF guidance of 24 August 2021 – III C 3 - S 7532/19/1002 :003)
  • VAT when trading goods via the internet; sample forms USt 1 TK and USt 1 TL (BMF guidance of 28 July 2021 ‒ III C 5 – S 7420/19/10002 :014)


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