According to a recent ruling of the BFH (Az. IX R 31/13 of 1 July 2014), the statutory interest rate of 0.5 percent per month is not unconstitutional. The BFH therefore did not refer the provision to the Federal Constitutional Court for a specific judicial review. In its ruling, the BFH reasons that, for the period up to March 2011, the legislator was not constitutionally obliged to align the statutory interest rate with the lower market rates available on financial investments. The statutory interest rate, the court argued, must not be measured solely against the interest rates obtainable on the market for investments; the interest payable on borrowed funds must also be taken into account. From our perspective, it remains an open question whether the legislator will reduce the interest rate going forward.
Frequently asked questions
Frequently asked questions
Are late-payment interest charges of 6% per year constitutional according to the BFH?
Yes. In its ruling of 01.07.2014 (Az. IX R 31/13), the BFH held that the statutory interest rate of 0.5 percent per month (6 percent per year) is not unconstitutional. The court therefore did not refer the matter to the Federal Constitutional Court for a specific judicial review.
Why does the BFH consider the 6% interest rate permissible despite low market rates?
The BFH bases its decision on the view that, for the period up to March 2011, the legislator was not constitutionally required to adjust the statutory interest rate to the lower market rate for investments. The decisive factor is not only the comparison with investment rates, but also with the interest payable on borrowed funds.
Which benchmark applies when assessing the statutory interest rate for tax purposes?
According to the BFH, the statutory interest rate must not be compared solely with investment interest rates achievable in the market. Borrowing rates payable on loans must also be taken into account. Only this combined assessment provides the basis for evaluating the constitutionality of the interest rate.
What is the case reference of the BFH ruling on the constitutionality of late-payment interest?
The relevant ruling by the Bundesfinanzhof has the case reference IX R 31/13 and was issued on 1 July 2014. It held that the interest rate of 0.5 percent per month on back taxes does not violate the German Basic Law (Grundgesetz).
Is a reduction of the statutory interest rate for tax purposes to be expected in the future?
The BFH ruling expressly only covers the period up to March 2011. Whether the legislator will adjust and lower the interest rate going forward in line with the changed market interest level was left open in the decision and is a political matter.