Cologne Fiscal Court strengthens entitlement to interest on delayedwithholding tax refunds

Significant ruling for international investors, funds and holding companies

In its judgment of 27 May 2026 (case reference 6 K 2020/22), the Cologne Fiscal Court (Finanzgericht, FG) ruled that non-resident applicants may, subject to certain conditions, have a direct entitlement under EU law to interest on delayed refunds of Germanwithholding tax. Although the case concerned an Austrian private foundation, the ruling is likely to have implications well beyond the individual case for international funds, asset managers, banks and holding companies. Leave to appeal on points of law was granted.

Notably, the court expressly stated for the first time that excessive processing delays at the German Federal Central Tax Office (Bundeszentralamt für Steuern, BZSt) can give rise to a standalone entitlement to interest under EU law. The Cologne Fiscal Court also clarified key questions concerning when interest starts to accrue and the applicable rates.

Background to the case

The claimant, an Austrian private foundation, applied in late 2017 for a refund of German withholding tax on dividend income received in the years 2013 to 2017 under section 43b of the German Income Tax Act (Einkommensteuergesetz, EStG). The court found that all required documentation and supporting evidence had been submitted in full with the application.

Nevertheless, the BZSt did not issue its first decision until approximately 20 months later. The refund was ultimately paid in full only following administrative objection proceedings and court proceedings for failure to act. The foundation subsequently sought interest on the amounts refunded late.

Excessive processing delays may breach EU law

The Cologne Fiscal Court clarified that a breach of EU law need not arise solely from the collection of tax that is unlawful on substantive grounds. Effectively frustrating or significantly delaying a relief procedure provided for under EU law may also constitute a breach of EU law.

In this case, the court considered a processing period of 618 days to be unreasonable. While the tax authorities are entitled to review refund applications and request supporting evidence, payment of valid refund claims must not be deferred indefinitely. In the court’s view, taxpayers must, in principle, be compensated for the resulting loss of use of their funds.

The decision therefore builds on the German Federal Fiscal Court’s (Bundesfinanzhof, BFH) case law from 2025 and extends its practical application to other withholding tax relief procedures.

Implications beyond the individual case

Of particular importance is the court’s finding that the EU-law principles established by the BFH are not limited to the specific circumstances covered by the former version of section 50d (3) EStG. In the Cologne Fiscal Court’s view, these principles may, in principle, apply to all withholding tax relief procedures governed by EU law.

These may include, in particular:

• refund procedures under section 43b EStG (Parent-Subsidiary Directive)
• procedures under section 50g EStG (Interest and Royalties Directive)
• refund procedures under double tax treaties
• other cross-border relief claims with an EU-law nexus

The ruling therefore potentially opens up new opportunities for internationally investing fund structures and holding companies to pursue interest claims against the tax authorities.

No entitlement to interest from the date tax was withheld

However, the court rejected the argument that interest should accrue from the date the dividend withholding tax was originally deducted. The Cologne Fiscal Court expressly confirmed that Germany’s two-stage system of withholding tax at source followed by a refund procedure is compatible with EU law.

The tax authorities are therefore entitled to examine whether the substantive conditions for relief are met and must be allowed a reasonable processing period for that purpose. A delay can constitute a breach of EU law only once that review period has expired.

Three months as the benchmark for a reasonable processing period

Following the BFH’s case law, the Cologne Fiscal Court considers that a complete refund application can generally be processed within three months. Interest under EU law starts to accrue once that period has expired.

In practice, this means that the completeness of the documentation submitted will become increasingly important. The date on which all required supporting evidence is available is likely to be decisive in many cases when determining a potential entitlement to interest.

Interest rates: initial clarification for periods from 2019 onwards

The court’s findings on the applicable interest rates merit particular attention. The Cologne Fiscal Court distinguishes between the rules applicable up to the end of 2018 and the reduced statutory tax interest rate applicable from 2019. Accordingly, the following rates should apply:

• up to 31 December 2018: 6.0% per annum
• from 1 January 2019: 1.8% per annum

The interest rate applicable from 2019 has not yet been conclusively settled by Germany’s highest fiscal court. The judgment therefore provides important initial guidance for comparable proceedings.

Strong criticism of BZSt processing times

The court’s findings on the practical operation of withholding tax refund procedures are also noteworthy. According to the information cited by the court, there had at times been substantial backlogs, with processing times ranging from nine to 24 months and tens of thousands of cases outstanding.

Although the court did not consider this to render the system as a whole incompatible with EU law, it expressly acknowledged a structural processing backlog. These findings are likely to provide important support for arguments in numerous ongoing proceedings.

Recommended actions for funds, banks and asset managers

International investors should revisit both ongoing and completed withholding tax refund proceedings. Cases may be particularly relevant where:

• refund applications remained pending with the BZSt for many months or years;
• administrative objection proceedings or court proceedings for failure to act were pursued;
• relief was sought under section 43b or section 50g EStG;
• refund claims were made under a double tax treaty; or
• substantial amounts of withholding tax were involved.

Going forward, investors should also maintain a complete record of when the BZSt receives a complete application, together with all requests for additional information and correspondence with the BZSt. This will make it considerably easier to pursue potential interest claims at a later stage.

Conclusion

The Cologne Fiscal Court’s judgment is among the most significant recent decisions on cross-border withholding tax refunds. For the first time, it expressly confirms that a standalone entitlement to interest under EU law may arise not only from the unlawful collection of tax but also from excessive delays in processing a valid refund application. The court also provides important guidance on reasonable processing periods, when interest starts to accrue and the applicable rates.

For international funds, asset managers, banks and holding companies, the decision offers significant potential to pursue interest claims that have not previously been considered. As leave to appeal on points of law has been granted, it remains to be seen whether, and to what extent, the BFH will uphold the Cologne Fiscal Court’s legal position.

Practical takeaway

The judgment should prompt a systematic review of past and ongoing withholding tax refund proceedings for potential entitlements to interest under EU law. Institutional investors, fund structures and holding companies, in particular, may have substantial additional amounts to reclaim. If you have any questions about this topic, our team would be happy to help. Please get in touch.