In its recently published judgment of May 27, 2026 (case no. 6 K 486/24), the Cologne Fiscal Court now goes further: the excessively long processing of a refund application by the Federal Central Tax Office (FCTO) may in itself give rise to a claim to interest under EU law, even where the application was decided correctly on the merits—but only in so far as the relief is based on the EU Parent-Subsidiary Directive.
The flip side is surprising: for relief granted solely under a double taxation agreement (DTA), the same court refuses interest and classifies its judgment of March 26, 2026 (case no. 6 K 2820/20), handed down only two months earlier and analysed by us in August, as an exceptional case. In both cases an appeal has been allowed in order to develop the law and is pending before the BFH (case nos. VIII R 10/26 and VIII R 18/26).
Summary
The claimant, a Czech s.r.o., held shareholdings in two German GmbHs and a silent participation in a German AG. Withholding tax and solidarity surcharge were withheld on the investment income for the years 2017 to 2019.
The complete refund applications were received by the FCTO in March 2019 and May 2020. The refunds were made in July 2021—that is, after almost 29 and almost 15 months, respectively—in full as regards the dividends and, as regards the income from the silent participation, only down to a residual tax rate of 15%. The refund notices became final and binding. What remained in dispute was the interest claimed by the claimant on the basis of EU law from the expiry of a three-month processing period.
The Cologne Fiscal Court upheld the claim in so far as the refund is based on section 43b of the German Income Tax Act (EStG) in conjunction with the MTR. To that extent, the relief provisions were implemented in breach of EU law. Once a reasonable processing period of three months has expired, a withholding that was initially compatible with EU law becomes contrary to EU law. Interest therefore accrues on a daily basis from that point until payment, at a rate of 0.15% per month (cf. section 238 para. 1a of the German Fiscal Code (AO)).
By contrast, the court refused interest going beyond this—that is, interest running from the time the withholding tax and solidarity surcharge were paid over, and interest on the relief for the silent participation based on the DTA with the Czech Republic. In its view, the two-stage procedure of withholding followed by a subsequent refund involves no enforcement deficit, and the DTA-based refund has no link to EU law.
The court does not mince its words, however: because of an intensive anti-abuse review that is not clearly defined in substance, the refund procedure “does not in fact function adequately”, and there is likely to be a processing backlog for which the FCTO is responsible.
Distinction from the judgment of the Cologne Fiscal Court of March 26, 2026 (case no. 6 K 2820/20)
The March case: an Austrian bank received relief from withholding tax and solidarity surcharge on payments from profit participation certificates issued by German banks for the years 2003 to 2008 only in 2019—after ten to almost 14 years. The cause was an incorrect application of the DTA with Austria. A DTA is not, in itself, EU law.
However, because mitigating double taxation has a positive effect on the functioning of the European Single Market, the Cologne Fiscal Court assumed an objectively ascertainable link to the subject matter of the EU Treaties. It regarded that link as sufficient only because the relief had been withheld for many years; whether it also holds for breaches of a DTA in other circumstances was left open. The interest period began six months after the complete applications had been received, because the assessment under the DTA was difficult.
The May case: both features of the March case were absent—an incorrect application of the DTA and the withholding of relief over several years. The relief decision was correct on the merits; the only complaint concerned the processing time.
For relief under section 43b EStG in conjunction with the EU Parent-Subsidiary Directive, the Cologne Fiscal Court considers it sufficient that three months were exceeded. For DTA-based relief, by contrast, it refuses interest: its March judgment was said to be an exceptional case, characterised by the combination of the incorrect application of the DTA with the withholding of relief for ten to almost 14 years. An infringement of the free movement of capital requires “more than” almost 29 and almost 15 months, respectively.
The difference: the Cologne Fiscal Court does not abandon its Single Market reasoning, but requires both elements for it—an incorrect application of the DTA and the withholding of relief over several years. Two questions are therefore decisive: on what basis is the relief granted, and for how long was it withheld? If it is based on section 43b EStG in conjunction with the EU Parent-Subsidiary Directive, three months suffice; if it is based on a DTA, a little over two years is not enough.
Our assessment
In the light of the new decision, our August post appears somewhat optimistic in its reach: we saw the March judgment as an important basis for arguments in cases of delayed withholding tax and DTA refunds, even then subject to the caveat that the Cologne Fiscal Court does not assume a general entitlement to interest for every error under a DTA. The May judgment draws that caveat considerably more widely: it essentially supports no more than its own constellation.
We are not persuaded by the distinction, for four reasons. First, the same waiting period is said to establish a link to EU law where the refund is based on the EU Parent-Subsidiary Directive, but not where it is based on a DTA—and this even though the DTA-based relief in the May case was granted correctly on the merits.
Secondly, the judgment does not say where, on this DTA line between almost 29 months and 14 years, the threshold lies.
Thirdly, the difference from the EU Parent-Subsidiary Directive line follows not from the Directive itself but from national procedural law. For applications under section 43b EStG, reference can be made to the statutory three-month period of the exemption certificate procedure (section 50d para. 2 sentences 6 and 7 EStG), because the substantive scope of review of both procedures is the same. The BFH therefore relied on that period as an appropriate standardised processing period and rejected the twelve months demanded by the FCTO under section 50c para. 4 sentence 3 EStG, because that period is tailored to the Interest and Royalties Directive (cf. BFH, case no. VIII R 32/21, paras 53, 57, 59).
No corresponding decision period exists for DTA-based relief. The court therefore has no standardised yardstick there—and relies on that very absence to erect a substantive hurdle. That is not convincing: the absence of a yardstick is not an objection to the claim but a task of standardisation.
Fourthly, the entitlement to interest rests on a general principle that is not confined to particular breaches of EU law—a limit drawn solely by reference to the legal basis and the duration is difficult to derive from it. In addition, the Cologne Fiscal Court itself describes the processing backlog at the FCTO as a structural problem, yet expressly denies a lasting enforcement deficit. For taxpayers, the reason why they lack liquidity makes no difference.
Practical implications
For investors subject to limited tax liability in Germany, this means review interest entitlement and keep refusal notices open—the fact that the refund notices have become final and binding should not stand in the way.
For the interest period, the Cologne Fiscal Court applies the three-month period of the exemption certificate procedure to applications under section 43b EStG, because the substantive scope of review is largely the same; the twelve-month period demanded by the FCTO applies only to refunds under section 50g EStG.
For DTA-based reliefs, a six-month period could be appropriate: the Cologne Fiscal Court itself assumed that period in the March case on account of the complex assessment under the DTA, and it could be based on section 347 para. 1 sentence 2 AO and section 46 para. 1 of the German Fiscal Court Code, which allow an administrative appeal and a court action where the tax authorities fail to act.
The BFH derived this in its judgment of March 13, 2024, case no. I R 1/20 (para. 88); that case, however, concerned the taxation of foreign funds under the Investment Tax Act 2004 in breach of EU law and interest on withholding tax that had not been refunded in breach of EU law (i.e. not a DTA case). Clarification now rests with the BFH.
