In a decision issued in June 2010, the Federal Tax Court (BFH) renounced its long-standing view that interest on tax refunds was subject to income taxation as regular interest income (see Deloitte Tax-News). Following this decision, the law was amended on 14 December 2010 to apply retroactively to all open cases which aimed at restoring the status quo before the BFH changed its position, so that interest on tax refunds was treated as taxable interest income.
The lower tax court in Münster has now ruled that the retroactive introduction of this law change was in line with constitutional requirements (case reference: 5 K 3626/03 E). Although changes of the law to the detriment of the taxpayer may only be enacted in very limited circumstances, this change was permissible because it implemented a long-standing view of the courts and practice of the tax authorities on the tax treatment of such interest income. Thus, the retroactive change is not in violation of constitutional standards.
The decision has been appealed and is currently pending before the Federal Tax Court (BFH, case reference: VIII R 1/11), as is a similar case (case reference: VIII R 36/10).
Affected taxpayers should keep their tax assessments open and monitor developments.
If you have any questions, please contact the authors of the article at gtln@deloitte.de or your regular Deloitte contact.
