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We analyse the impact as Germany slashes interest owed on outstanding tax payments
The German parliament is likely to soon pass new rules regarding interest charged on taxes for the period between when the tax is incurred and assessed.
Currently, interest begins to accrue after a grace period of usually 15 months (which has temporarily been extended during the Covid pandemic). In the past, interest was assessed at a rate of 6% per annum (0.5% per month), and the same rate generally applied to tax refunds.
On 18 August 2021, the German Federal Constitutional Court (Bundesverfassungsgericht) decided that the interest rate of 6% was unconstitutional and required the German legislature to draw up new rules on the basis of a reduced interest rate by the end of July 2022. The German government is currently considering the following new rules:
Going forward, the German legislature is held to review the interest rate every three years, first time being on 1 January 2026 and amend the interest rates if the base rate (Basiszinssatz) has changed by more than one percentage point.
The reduction of the interest rate was overdue and is positive for taxpayers. However, the German legislator did not take up the suggestion by some taxpayers and advisers to suspend the accrual of interest during tax audits.
HSF German partner Steffen Hörner comments "Taxpayers should review their tax assessment notices and make sure that the tax authorities apply the lower interest rate to the extent assessments have not yet become final and binding. It is important to note, however, that the rate of interest accruing while the enforcement of the relevant tax has been suspended has not been reduced and taxpayers will need to take this into account when considering whether to apply for a suspension of execution during a tax dispute."
For more information please get in touch with our German tax team.
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
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