Münster Fiscal Court expresses doubts on constitutionality of interest on suspended tax liabilities for the years 2014 to 2018

Initial situation

This decision is based on proceedings for interim relief to grant a stay of enforcement under section 361 of the Fiscal Code (Abgabenordnung). The applicants, who had been jointly assessed for income tax, brought an appeal against income tax assessments for the years 1995 to 2007. During these proceedings, enforcement of the disputed tax amounts was partially suspended. After the appeals were largely unsuccessful, the tax office assessed interest on the suspended amounts in accordance with sections 237 and 238 of the Fiscal Code.

The taxpayers objected to the assessment of suspension interest for periods between 1 January 2014 and 31 December 2018. They considered that the interest rate of 0.5% per month laid down in section 238(1) was constitutionally questionable in light of the long-standing low interest rates. The tax office argued that the statutory rule of section 238(1) (i.e. 0.5% per month) continued to apply to suspension interest and that a special provision comparable to section 238(1a) (i.e. 0.15% per month for full interest accrual starting in 2019) had not yet been introduced. Furthermore, the Federal Constitutional Court (BVerfG) case law on full interest accrual under section 233a cannot automatically be applied to suspension interest.

Background: Differences between full interest accrual and suspension interest

Full interest accrual refers to the statutory interest accrual on additional tax owed and tax refunds. Full interest accrues if income tax, corporate income tax, trade tax or VAT is assessed for the first time or at a higher rate more than 15 months after the end of the tax year. Interest on refunds is assessed correspondingly. In 2021, the Federal Constitutional Court held (decision of 8 July 2021, 1 BvR 2237/14; 1 BvR 2422/17) that the annual interest rate of 6%, which at that time also applied to full interest accrual, was unconstitutional from 1 January 2014 onwards due to the period of low interest rates; however, it issued an order of continued application for the years 2014 to 2018. The German legislator was therefore required to reduce the rate of full interest accrual retroactively, but only with effect from 2019.

By contrast, suspension interest accrues where tax that has been assessed but suspended due to a dispute, usually at the taxpayer’s request, must ultimately be paid following an unsuccessful appeal and is therefore subject to interest retrospectively. This interest is intended to offset the liquidity advantage arising from the temporary non-payment and under section 238(1) amounts to 0.5% per full month.

Münster Fiscal Court cast serious doubts on the constitutionality of suspension interest

Münster Fiscal Court has upheld serious doubts about the constitutionality of the interest rate of 0.5% per month for suspension interest for interest accrual periods between 1 January 2014 and 31 December 2018. The crucial thing here is that the constitutional issue, which relates to the period of low interest rates at that time, is not limited to full interest accrual under section 233a. Suspension interest, too, is linked to a standardised liquidity advantage. The fiscal court based its finding on the fact that, as the statutory interest rate deviates further from the prevailing market rate, it becomes questionable whether the standardised charge is still constitutional.

It is of particular practical relevance that the fiscal court granted a stay of enforcement in the full amount for the disputed interest accrual periods prior to 2019. These proceedings therefore differ from those relating to suspension interest starting from 2019, in which the focus is often on the difference between 0.5% and 0.15% per month. The reason for this different approach is that, for the period from 2014 to 2018, the question arises whether the continued application of the old law or interest rate (“order of continued application”), as ordered by the Federal Constitutional Court (BVerfG) for interest on arrears, can be applied to suspension interest at all. Neither the Federal Fiscal Court nor the Federal Constitutional Court has yet reached a final decision on the matter.

A look at developments in the tax law governing interest from 2027

Against this background, the planned increase in the interest rate for full interest accrual under section 233a in conjunction with section 238(1a) is also becoming more significant. According to the draft bill for the Annual Tax Act (Jahressteuergesetz) 2026, this rate is to be raised from 0.15% to 0.3% per month with effect from 1 January 2027. In the legislator’s view, this increase reflects the changed market interest rate situation and narrows the gap with suspension interest, which continues to be calculated at 0.5% per month. Nevertheless, the differing treatment of the individual tax interest scenarios remains in place. The question raised by Münster Fiscal Court therefore concerns not only past cases, but also the future structure and practical application of the tax law governing interest.

Practical note

In cases that are still open, interest assessment notices relating to suspension interest for interest periods between 1 January 2014 and 31 December 2018 should be carefully examined to determine whether an appeal can be filed and whether a suspension of enforcement can be requested, if necessary. The ruling by Münster Fiscal Court provides a sound basis for argument in this regard, but does not replace a definitive decision by the supreme court.

For interest periods starting from 2019, it should be noted that suspension interest continues to be calculated at 0.5% per month, while interest on additional tax dues and refunds under section 233a currently amounts to only 0.15% per month. In the case of interest on tax refunds, section 20(1) no. 7 sentence 3 of the Income Tax Act [Einkommensteuergesetz–EStG] should also be taken into account, according to which the tax liability may reduce the economic benefit of the interest on the tax refund.

 The interest rate may be due to rise to 0.3% per month starting in 2027 under section 238(1a) of the Fiscal Code, thereby narrowing the gap with suspension interest. Nevertheless, it remains to be seen whether the difference in interest rates between suspension interest and full interest is justified by the facts.

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