FAQ
Status: 08/18/2021 5:41 p.m.
Savers have not known interest for a long time, but the tax authorities do. For years they held on to a high tax rate – which the Federal Constitutional Court is now opposing. What are the consequences?
What is tax interest anyway?
Tax office interest applies to both tax back payments and tax repayments. They are due if the assessment is delayed by more than 15 months, i.e. if part of the taxes is only paid in retrospect or if the overpaid taxes have remained with the tax authorities for too long. The taxpayer benefits from refunds and the state benefits from additional payments.
With the tax interest, the tax authorities want to ensure that all those affected are burdened equally. They should compensate for the liquidity advantages and thus profits that could have been generated with the money in that time. Unlike the late payment surcharge, the tax office interest is therefore not seen as a punishment. They apply to income, corporation, wealth, sales and trade tax.
What is the tax rate?
The uniform interest rate was set in 1961 and has not changed since then. It is 0.5 percent per month, i.e. six percent per year.
Why is that a problem?
In the opinion of the critics, the comparatively high interest rate per year has nothing to do with the reality on the capital market. Profits would be skimmed off that could not be achieved at the moment.
After all, after the financial crisis, the European Central Bank (ECB) continued to lower the key interest rate over the past few years. The deposit rate has been in negative territory since 2014 – it is currently minus 0.5 percent. This means that banks have to pay penalty interest when they park money at the central bank. The key interest rate for supplying the institutes with liquidity has been at a record low of 0.0 percent since March 2016.
The banks pass these low interest rates on to the depositors. Even negative interest rates are becoming increasingly popular: According to an evaluation by the comparison portal Verivox, 367 banks and savings banks demanded negative interest rates from their private customers in July, who park money in current or overnight accounts. That is twice as many as at the beginning of the year.
What are the effects of the high tax rates?
In the case of private taxpayers, the sums are quite small. Nevertheless, the interest rate for late notifications is disproportionately high. For those who are not required to file a tax return, the wait could even be worthwhile. You do not have to submit your voluntary declaration until four years after the end of the respective year and were thus able to earn interest income from the 16th month – even if these in turn have to be declared in the next tax declaration.
It hits companies that pay high tax amounts harder. So far, you have had to fear drastic additional demands. In Karlsruhe, therefore, two companies took legal action whose trade tax had been revised upwards significantly after a tax audit. In one case, the interest to be paid increased from 423 euros to more than 194,000 euros. The second procedure also involves a six-figure amount.
What did the Federal Constitutional Court decide?
The Federal Constitutional Court declared the annual interest on tax debts to be unconstitutional. The judges of the First Senate consider the interest rate to be “evidently unrealistic” since 2014 at the latest. In order not to expose the state budget to too great a degree of uncertainty, they only order corrections for more recent notices since 2019. Interest that was previously set is no longer being shaken.
The legal situation in the Bundestag and Bundesrat had already been criticized beforehand, explains Leo Kohz from the ARD legal editors. But the federal government has opposed all proposed changes – until now. Because now the legislature has until the end of July 2022 at the latest to regulate the tax rate again.
The court does not specify a specific amount or upper limit. Obviously, however, it has to be reduced significantly. The introduction of a bandwidth within which the tax rate can move after changes in the interest rate level is also under discussion. The Treasury Department wants to address the problem quickly. The state secretary Rolf Bösinger stated that “preparations will be made quickly together with the supreme financial authorities of the federal states in order to implement the decision of the constitutional court”.
What does this mean for taxpayers?
Anyone who has paid back payment interest or received reimbursement interest since 2019 is likely to be affected by the subsequent changes. The prerequisite is that the tax assessment is not yet legally binding. However, this is likely to be the case in many cases, because due to the unclear legal situation, the tax offices had only provisionally set the interest in all notices since May 2019. How many taxpayers are really affected is unclear.
But: Anyone who has paid too much interest will probably get their money back. The reverse is also true: Anyone who was happy about a tax refund with generous interest rates may have to pay something back. It is not yet possible to say what amounts are involved. That depends on what the future interest rate will be.
The companies were particularly pleased with the verdict. Often the interest burden was higher than the tax to be paid, said Joachim Lang, General Manager of the Federation of German Industries (BDI). That punished the companies. The new regulation called for by the Constitutional Court finally gives more planning security.