Taxes withheld unjustly are to be charged interest at a rate of 6 percent. This was decided by the Cologne Fiscal Court in its judgment on November 17, 2021 (Case No.: 2 K 1544/20).
If taxpayers fall behind on tax payments, they must pay interest on the overdue taxes. However, tax law can also work the other way around, as shown by the decision of the Cologne Fiscal Court: Accordingly, a tax refund claim, wrongfully denied based on regulations that contradict EU law, must also be subject to interest, explains the law firm MTR Legal, which specializes in tax law.
The plaintiff before the Cologne Fiscal Court was a company based in Austria. The company had submitted several applications to the Federal Central Tax Office for exemption and reimbursement of the German withholding tax on capital gains and the solidarity surcharge. However, these applications were denied based on Section 50d (3) of the Income Tax Act (EStG). The European Court of Justice had decided that this provision is not compatible with EU law, as it violates the freedom of establishment and the free movement of capital. Therefore, the company is entitled to a refund of the wrongly paid taxes. Now, they also demanded interest on the taxes to be refunded.
Since the Federal Central Tax Office refused to pay the interest, the company filed a lawsuit. The lawsuit was successful at the Cologne Fiscal Court. The court found that the plaintiff is entitled to interest at a rate of 0.5 percent per month or 6 percent per year due to the withholding tax retained in violation of EU law. The interest claim regularly begins on the first day of the unjust tax payment, the court said.
However, the Cologne Fiscal Court continued, a reasonable period of four months and ten working days should be granted to the Federal Central Tax Office to process the reimbursement request, provided the taxpayer did not use the legally prescribed exemption procedure for the withholding tax on capital gains.
The decision is not yet final. The appeal is pending before the Federal Fiscal Court under the file number I R 50/21.
The law firm MTR Legal provides its clients with experienced attorneys in tax law.
