According to the Federal Fiscal Court, interest payments under Section 233a of the German Fiscal Code (AO) resulting from the refund of overpaid trade tax constitute business-related income and must be included in the calculation of taxable profit. The provision in Section 4 Paragraph 5b of the German Income Tax Act (EStG), which excludes the deduction of trade tax as a business expense, does not preclude such inclusion (Case No. IV R 16/23).

The plaintiff, a general partnership (GbR) engaged in management consulting and insolvency administration, included interest on refunded trade tax in its profit calculations for the assessment periods 2013 to 2015 and then deducted it off-balance-sheet, citing Section 4 Paragraph 5b of the German Income Tax Act (EStG). Following external audits, the tax office increased the assessed profits by this interest income and issued amended profit assessment and trade tax assessment notices. The Tax Court dismissed the action. In its appeal, the plaintiff argued that the non-deductibility rule of Section 4 Paragraph 5b EStG classifies trade tax and related ancillary charges as non-taxable, and therefore, interest on refunds should also be tax-exempt.

The Federal Fiscal Court counters that interest on refunds is business-related because it compensates for lost interest income resulting from the temporary withdrawal of business funds in connection with trade tax. According to the legally relevant definition, business income includes all cash inflows attributable to the business. Interest income is therefore included. According to the Federal Fiscal Court's jurisprudence, Section 4 Paragraph 5b of the Income Tax Act (EStG) effectively prohibits the deduction of trade tax paid and related ancillary charges, but does not alter the business-related nature of these payments. Furthermore, the legislative history and subsequent clarifying regulations for capital income demonstrate that the legislator did not intend to exclude interest on refunds, but rather to subject them to the general principles of taxation. The different treatment of interest on arrears (non-deductible) and interest on refunds (taxable) is justified both systematically and constitutionally: interest on refunds compensates for lost interest income and is comparable to interest that is taxable in typical capital situations. An exemption would lead to unjustified advantages and contradict the principle of equality. Against this background, the Federal Fiscal Court dismissed the appeal as unfounded. The disputed interest on the refunds must be recorded as business income, and the contested assessments remain valid to this extent.

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