Sales Tax State Activity Update - November 2008

German Supreme Court Rules Interest Due on Delayed VAT Refunds

In a landmark decision, the German Supreme Court (BFH) has ruled that refund claims of input VAT under the 8th and 13th Directives constitutes an assessment of VAT and is liable to interest.

The BFH concluded that a VAT refund application is a tax return like any other tax return even though a taxpayer is not obliged to submit a VAT refund application. While refunds are a negative amount it does not change the fact that an assessment has been made. Had the Court come to any other conclusion it would infringe on Community law since a decision to not pay interest on refund claims would have impacted only foreign businesses and put them at a disadvantage.

Interest becomes payable 15 months after the end of the year in which the right to deduct the input VAT has arisen. The period for interest claims is limited to one year from the end of the year in which the corresponding VAT refund was assessed. This decision could be far reaching since many claims are finalized years after being submitted.

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