Court lowers tax interest rate to 4%

On 7 November 2024, Groningen District Court ruled that the 8% tax interest rate on corporate income tax violates the principle of proportionality and should therefore be reduced to 4%. At the time, this lower rate applied to other taxes such as income tax.

Tax interest is charged if an assessment is not requested or filed on time. Until 2024, this interest rate for corporate tax was at least 8%, linked to the legal interest rate for commercial transactions, and was increased to 10% in January 2024. This rate was subject to debate because of the high cost for taxpayers and the alleged budgetary motivation behind it.

The court declared the Tax and Recovery Interest Decree non-binding because the link to commercial transactions is unreasonable. Commercial transactions involve business receivables, while a tax debt is not. The court also found insufficient justification for the 8% rate because its purpose was not clearly defined. The 8% rate was assessed as disproportionately burdensome on taxpayers and violates the principle of proportionality.

This ruling affects taxpayers who have paid tax interest since 1 January 2022. Advice is to object to decisions on tax interest and possibly apply for a review. The Inland Revenue is likely to appeal.

Source: KPMG