Tax arrears If the tax debt interest falls, the federal government lacks billions
- For the first time, the Federal Finance Court doubts that six percent interest on back taxes is constitutional.
- It’s about a lot of money: The tax offices so take in more than two billion euros a year.
- Now the Federal Constitutional Court has to decide – and probably even this year.
If the tax office demands taxes, often a hefty premium is payable: half a percent for each month, a total of six percent a year, is the so-called supplementary interest. So it has been unchanged for decades in the law. But now the Federal Finance Court (BFH), Germany’s highest tax court, the amount of this mark for the first time in question.
In a decision published on Monday, the court criticized the current practice with clear words: There were “serious constitutional doubts”, whether the interest in its present form and amount does not violate the principle of equality enshrined in the Basic Law and the excess ban, it says in the statement of the Ninth Senate chaired by BFH President Rudolf Mellinghoff (Az. IX B 21/18) .
Supreme Tax Court: interest on tax liabilities are too high
So far, six percent of tax offices have been taxed by defaulting taxpayers. The Federal Finance Court questions this practice for the first time.
Although the basis of the decision is only a so-called summary examination, a kind of urgent procedure. The criticism contained therein is very basic. For example, the judges complain that the interest rate has been “out of date” for the period since 2015. Six percent, given the “structural and sustainable consolidation of the low level of market interest rates, significantly exceeds the appropriate scope of economic reality”. For example, the key rate of the European Central Bank (ECB) has been at zero percent for more than two years. In general, according to the judges, it lacks “a comprehensible justification” for the amount of the interest.
The decision brings political explosive: The state earns well on the demand interest, annually take the tax offices more than two billion euros in addition from the taxpayers. And that, even though late disbursed balances with the treasury with six percent interest. Exactly for this reason, the Federal Ministry of Finance holds the interest rate in its current form for constitutional compliance, said a spokesman. On the other hand, the BFH sees a need for action: “It can be assumed that the legislature is aware of the need to adjust the amount of interest”.
Most of the revenue comes not from private individuals, but from companies that have to pay taxes after a tax audit. That’s the way it was in the current case. An entrepreneurial couple had received a tax rebate of almost two million euros – and should additionally pay a good 240 000 euros interest. The taxes were transferred to the couple, against the surcharge it objected – with success. The case must now be finally decided in a main proceedings.
Taxpayers still have to become active themselves
The impact that the decision will have on all taxpayers now lies above all with the Federal Constitutional Court. There are already several proceedings pending for the additional interest. And it is becoming apparent that the constitutional judges will also look at the size of the serve. You could judge this later this year.
For the time being, taxpayers have to become active themselves and, if necessary, object to a decision on interest. They can refer to the current decision of the chief financial judge. If that is not enough, they themselves have to go to court to have the decision suspended.
Another explosive factor in the decision of the BFH is that the Ninth Senate, with its new resolution, is throwing a recently passed judgment from its own house over the pile. At the end of February, the BFH’s Third Senate had issued its verdict on a similar case in 2013, according to which the premium of six percent was indeed admissible . The presiding judge Stefan Schneider indicated that the decision, in his view, can also be applied to cases from later years, although interest rates have fallen further during this time. “An annoyance” is not enough, so that the interest would be unconstitutional, he said then.
BFH President Mellinghoff and the other judges of the Ninth Senate see this in a fundamentally different way – and also take a look at the arguments of their colleagues at the time. They had based their decision on a wide range of interest rates on various deposits and loans – from the savings account to the Dispo – and thereby determined a range of 0.15 to 14.7 percent. Thus, the six percent surcharge of the treasury did not leave the “range of realistic reference values”, so the third senate. This argument is rejected by the Ninth Senate. The high credit card and MRP interest are “special factors” and not suitable as a reference.
That the same, uniform interest rate simplifies the work of the administration, the BFH also no longer applies. Thanks to digital data processing in the tax offices, it is no longer a problem to align the amount of the premium with a current market interest rate or the current base interest rate. The Bavarian municipalities, for example, have done something similar since 2014.
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