Tax & Legal

Interest on trade tax refunds pursuant to Section 233a of the General Tax Code (AO) must be recorded as business income when determining taxable income. In a most recently published decision the Supreme Tax Court further stated that the treatment of interest that is not deductible (i. e. added back to income) as interest on arrears pursuant to Section 4 (5b) Income Tax Act versus interest refunds which are subject to income tax does not violate the principle of equality under the Basic Law.

The Federal Ministry of Finance published a draft bill dated 14 February 2022, regulating the statutory interest rate for interest on tax arrears and tax refunds.

The Federal Finance Ministry has issued a circular on the implementation of the decision of the Federal Constitutional Court of July 8, 2021 regarding the inappropriate statutory interest rate on late payment and refund taxes. The ministerial notice will have to be applied for the transitional period until retroactive new provisions on the interest rate pursuant to sections 233a, 238 (1) sentence 1 of the German Fiscal Code (AO) for interest periods starting on or after January 1, 2019 are in place.

The Supreme Tax Court has held that interest received on a tax refund due is taxable income despite the non-deductibility of interest payable on an outstanding liability.