1% Late Tax Payment Surcharge Is Lawful: Ruling of the German Federal Fiscal Court

On March 21, 2025, the German Federal Fiscal Court (Bundesfinanzhof, BFH) issued a landmark ruling in case X B 21/25, confirming that the 1% monthly surcharge (Säumniszuschlag) for late tax payments is constitutional and legally valid. According to the court, this interest rate is no longer considered excessive in light of the general increase in market interest rates since 2022. The surcharge remains a legitimate fiscal instrument to encourage timely tax compliance and penalize delays appropriately.

Equally important is the court’s clarification regarding the suspension of enforcement (Aussetzung der Vollziehung, AdV). When granted under the condition of providing security (such as a bank guarantee), the suspension generally has retroactive effect, unless the tax authority explicitly excludes such retroactivity. This distinction is crucial for taxpayers who intend to dispute a tax assessment or recover payments already made.

The BFH’s ruling brings greater legal certainty to a long-debated issue in German tax law. During years of low interest rates, the 1% surcharge was widely criticized as disproportionate. However, under the changed economic circumstances, the court found no constitutional violation. For taxpayers, this means that the chance of successfully challenging such surcharges in court has significantly decreased. Nonetheless, the option to request a suspension of enforcement remains available, particularly when the underlying tax claim is doubtful or causes undue hardship.

This decision in case X B 21/25 sends a clear signal: established tax rules continue to apply even in times of economic change. The 1% monthly surcharge will remain in force throughout 2025, now with firm judicial backing from the highest German tax court.