1. Introduction
In our Newsletter 20/2018, dated 18.05.2018, we presented a landmark decision by the 9th Senate of the Federal Fiscal Court (hereinafter: “BFH”, decision dated 25.04.2018, file no IX B 21/18). In this decision, the Senate found the interest rate charged on tax arrears to be unconstitutional. It is 6% per annum (sec 238 para 1 sentence 1 of the General Fiscal Code). We therefore recommend that those affected appeal against each individual interest assessment.Also, taxpayers should apply for a suspension of the execution of the assessment.
2. Reaction of the Federal Ministry of Finance
The Federal Ministry of Finance (hereinafter: “BMF”) has now reacted to the court’s decision. In a letter dated 14.06.2018 it explains how tax offices should deal with this new situation (letter dated 14.06.2018, file no IVA3 – S 0465/18/10005-01, 2018/0482980). The BMF thereby distinguishes between interest, which has been assessed for interest periods both before and since April 2015.
2.1 Interest accrued since April 2015
The BMF has instructed all tax offices to grant a suspension of the execution, where the interest has been accrued as from April 2015. This applies irrespective of the type of tax or the tax period. Furthermore, the instruction is not limited to interest on tax arrears but applies to any interest assessments based on sec 238 General Fiscal Code, i.e. interest on: (i) deferred tax payments, (ii) suspended tax payments and (iii) evaded tax. However, the BMF requires that the taxpayer has appealed against the interest assessment. Furthermore, the taxpayer must apply for a suspension of execution. The tax offices will only suspend the execution of interest assessments if both requirements are met.
2.2 Interest accrued prior to April 2015
The guideline mentioned above does not apply to interest which accrued prior to April 2015. Taxpayers can thus not refer to the BFH’s decision as regards such interest assessments.
The BMF instructs to suspend such interest assessments only in cases of undue hardship. The BMF also provides a justification as to why interest assessments do not usually constitute undue hardship. Thereby, it confirms its hithertoadministrative practice.
2.3 Consequences
As of now, tax offices suspend interest assessments for interest periods dating from April 2018. The suspension requires that taxpayers apply it and appeal against the interest assessment. As regards prior periods, the hitherto administrative practice continues to apply. The overview below shows for which interest periods tax offices will suspend interest assessments:
3. Consequences for the practice
Now, more than ever, taxpayers should take care that they appeal against each interest assessment and apply for a suspension of execution. The appeal must be expressly directed against the interest assessment. It is therefore not sufficient to appeal against the tax assessment itself. The application will only be successful if it is limited to interest accrued since April 2015.
Any application for suspension of execution, for interest periods prior to April 2015, will be rejected by the tax office. Subsequently, a suspension of execution may be applied for at the fiscal court of first instance. However, it is currently difficult to predict, whether such an application would be successful. To date, the BFH has always held that the 6% interest rate is constitutional, most recently with respect to the interest period for 2013 (see KMLZ Newsletter 10/2018).
The BFH’s decision concerns interest assessments for the tax periods 2013-2015. The interest period commences 15 months after the year in which the tax liability has arisen (sec 233a para 2 sentence 1 General Fiscal Code). For the tax period 2013, the interest period therefore commenced on 01.04.2015. Accordingly, the BFH only addressed interest assessed for interest periods starting from 01.04.2015. The BMF has also based its letter on this said date.
Currently, six proceedings are pending before the BFH and two before the Federal Constitutional Court as regards the question of whether the interest rate charged on tax arrears is constitutional. It remains to be seen whether the courts will follow the decision of the BFH’s 9th Senate. If not, the BMF is quite likely to withdraw its present letter very quickly.
Contact person:
Matthias Luther, L.L.M. Tax
Lawyer
Phone: +49 211 54095395
matthias.luther@kmlz.de
As per: 18.06.2018
