Background:
The tax office sets the interest rate at 0.5% per month, totalling 6% per year. And it has done so for more than 50 years. However, protests against the high interest rates have grown louder, as the market interest rate is significantly lower. A legal challenge against the high late-payment interest was dismissed some time ago on the grounds that tax office refunds are also subject to interest at 6%.
New lawsuit pending:
A married couple from North Rhine-Westphalia is currently challenging the interest assessments on their tax notices for 2010 and 2011, as the tax office took several months to process their 2011 income tax return and did not issue a final assessment for 2010 until January 2016. From the plaintiffs' perspective, this resulted in late-payment interest of 6% per year that is "too high" compared with the current market rate. The couple bases their claim, among other things, on the fact that they themselves are not responsible for the long processing times. They also argue that the 6% interest rate is unreasonable.
Note for anyone facing assessed late-payment interest:
File an appeal against the interest assessments in your tax notice as well, referring to the test case at the Finanzgericht Münster, FG Münster, Az. 10 K 2472/16E, and additionally cite the BFH proceedings with case numbers BFH, Az. I R 77/15 and III R 10/16.
If the courts rule in favour of taxpayers, the excess interest paid will automatically be refunded by the tax office.
Frequently asked questions
Frequently asked questions
What is the statutory interest rate charged by the tax office on back taxes?
Pursuant to § 238 AO, the tax office charges interest of 0.5% per month, or 6% per year. This rate has remained unchanged for over 50 years and applies to both back payments and refunds.
Why is the 6% annual interest rate considered too high?
Market interest rates have been significantly below 6% for years, making the late-payment interest appear disproportionately high by comparison. Taxpayers also argue that they are not responsible for the lengthy processing times at the tax offices, which result in substantial interest burdens.
Which model proceedings are pending against the level of late-payment interest?
Before the Finanzgericht Münster (Münster Tax Court), proceedings are pending under case number 10 K 2472/16E. In addition, proceedings are pending before the BFH under case numbers I R 77/15 and III R 10/16.
How can taxpayers challenge excessive interest on back taxes in their tax assessment?
Affected taxpayers should file an objection (Einspruch) against the interest assessment within the objection period and refer to the pending model proceedings at the FG Münster (10 K 2472/16E) and at the BFH (I R 77/15 and III R 10/16). This keeps the assessment open on this point.
What happens if the model proceedings on the interest rate are decided favorably?
If the courts rule in favor of taxpayers, everyone who filed a timely appeal will automatically be refunded the excess interest paid by the tax office. Without an appeal, the assessment becomes final and a refund is not possible.