Interest rate for suspension of enforcement unconstitutional?

When does suspension interest arise?

If a tax assessment is contested by means of an objection or legal action, its enforcement, such as the payment of the assessed tax, is not automatically suspended. Only the suspension of enforcement (‘AdV’) suspends the payment of the disputed tax on request if there are serious doubts about the legality of the contested assessment. If the objection or action is ultimately unsuccessful (in whole or in part), the tax office must set so-called ‘suspension interest’ (AdV interest). The interest rate for suspension of enforcement is 0.5 % for each month suspended.

Interest rate for interest on arrears already reduced

The Federal Constitutional Court had already ruled in its decision of 8 July 2021 that the interest rate of 0.5 % per month since 1 January 2014 was unconstitutional. However, it had ordered the previous interest rate to continue to apply until 31 December 2018 and instructed the legislator to introduce new regulations (see blog post from 19 January 2021). The legislator then reduced the interest rate for interest on arrears, but not for suspension interest and other interest situations, to 0.15 % per month from 1 January 2019 (see blog post from 5 April 2022).

Federal Fiscal Court also deems interest rate on suspension unconstitutional

The Federal Fiscal Court has now come to the conclusion in a reference that the interest rate for the suspension of enforcement from 1 January 2019 is unconstitutional.

It sees a violation of the principle of equal treatment for taxpayers who owe interest on arrears (now 0.15 % per month) and taxpayers who owe interest on the suspension of enforcement (0.5 % per month) without a clear reason for the differentiation being recognisable.

Furthermore, it highlights a contradiction in the legislator's own behaviour. The reduction of interest on arrears and refunds to 0.15 % per month shows that this level of interest is apparently sufficient to fully compensate for the liquidity advantage resulting from later payment.

According to the Federal Fiscal Court, the fact that the Federal Constitutional Court had not already commented on the other types of interest in its ruling on interest on arrears also does not lead to a different assessment. It was explicitly stated in the decision that the other interest situations require an independent constitutional assessment.

Decision by the Federal Constitutional Court remains to be seen

As a consequence, the Federal Fiscal Court has requested a decision from the Federal Constitutional Court on whether it is compatible with the German Basic Law that the interest rate for suspension of enforcement is 0.5 % per month. The decision of the Federal Fiscal Court is to be welcomed and gives hope that further interest rates will be adjusted to a lower interest level. Should the Federal Constitutional Court come to the conclusion that the interest rate for the suspension of enforcement interest is also too high, it is also to be hoped that the Federal Constitutional Court will not once again issue a generous continuation order and instead call on the legislator to retroactively create a constitutional regulation.

Until then, notices regarding the assessment of interest for the purposes of an ad interim payment should be kept open and the suspension of enforcement of the disputed interest amounts should be applied for. This is because - after all - interest on the suspension of enforcement is not subject to further interest.

Federal Fiscal Court, order for reference dated 8 May 2024, VIII R 9/23