Germany: The Annual Tax Act 2026 Cabinet Draft Turns VAT Grouping into an Elective Regime and Makes Electronic Notification the Default
Country Update — Germany | 25 August 2026 | Topic: VAT Grouping / Tax Procedure
On August 12, 2026 the Federal Cabinet adopted the government draft of the Annual Tax Act 2026 (Jahressteuergesetz 2026), announced by the Federal Ministry of Finance in press release No. 14/2026. For indirect tax, the central change is a redesign of the German VAT group (umsatzsteuerliche Organschaft) from a purely substantive-law construct into a regime that takes effect only on an express declaration by the controlling entity. The draft also makes electronic notification of assessments the default from January 1, 2027.
Background
The German VAT group is an outlier in European practice. In most Member States a VAT group is formed by application and approval; in Germany it has arisen automatically wherever the statutory criteria of financial, economic and organizational integration are satisfied, with no election and no filing. The consequence is well known to anyone who has run a German VAT compliance function: whether an Organschaft exists at a given moment is a question of fact that can be reassessed years later, often by an auditor, and the effects are retroactive across the whole group.
That structure has generated persistent litigation, repeated reference to the Court of Justice of the European Union, and a standing exposure that is very difficult to model. It also sits awkwardly alongside the direction of travel elsewhere in Europe, where ViDA and single VAT registration are pushing toward clearer, registered group perimeters.
The Annual Tax Act is Germany's omnibus tax vehicle, used each year to make many unconnected technical amendments. The August 12, 2026 Cabinet adoption is the government draft stage: the bill now proceeds to the Bundestag and Bundesrat, and material change during parliamentary passage is normal.
The Legislative Change
This is a genuine legislative development, not a technical artifact — though at the government-draft stage it is a proposal rather than law.
On VAT grouping, the draft establishes the Organschaft as a stand-alone regime whose legal effects arise only when the controlling entity (Organträger) makes an express declaration. Under the draft, both the formation of the group and the admission of individual controlled entities (Organgesellschaften) can be effected at short notice with effect for the future. The shift from automatic, retroactively assessable status to declared, forward-looking status is the substance of the change.
On procedure, the draft amends section 122a of the Fiscal Code (Abgabenordnung) so that taxpayers holding an active ELSTER user account receive assessments and objection decisions electronically without express consent from January 1, 2027. Taxpayers wishing to continue receiving paper must request that electronically.
The draft also raises the interest rate on tax back payments and refunds under the Fiscal Code from 0.15 percent to 0.3 percent per full month — 3.6 percent per annum — from 2027; removes the requirement for advance exemption certificates for non-resident shareholders holding 10 percent or more, replacing it with a post-transaction refund claim; raises the royalty withholding-tax de minimis threshold from EUR 10,000 to EUR 100,000; extends DAC7 platform reporting to operators resident in third countries; and aligns the Minimum Tax Act with the Side-by-Side Package.
The draft contains no e-invoicing provisions. Germany's B2B e-invoicing issuance phases running to 2028 are unaffected by it.
Scope
The VAT grouping change affects every group with German entities that currently is, or might be, an Organschaft — including groups that believe they are not one. The procedural change under section 122a of the Fiscal Code affects every taxpayer with an active ELSTER account, which in practice means every German business.
The interest-rate change applies to Fiscal Code interest generally, and therefore to VAT assessments and refunds as well as to direct taxes.
Timeline
- May 19, 2026 — departmental draft of the Annual Tax Act 2026 published by the Federal Ministry of Finance.
- August 12, 2026 — Federal Cabinet adopts the government draft; BMF press release No. 14/2026.
- Autumn 2026 — parliamentary passage through the Bundestag and Bundesrat expected.
- January 1, 2027 — electronic notification becomes the default under the amended section 122a of the Fiscal Code, as drafted.
- 2027 — Fiscal Code interest rate rises to 0.3 percent per full month, as drafted.
Businesses Affected
Multinational groups with German operations are the primary audience, and three situations deserve immediate attention. First, groups that currently operate as an Organschaft and will need to decide whether and when to declare. Second, groups that have concluded no Organschaft exists but whose position has never been tested — for them, an election-based regime is an opportunity to convert an open question into a documented position. Third, groups that have deliberately structured to avoid an Organschaft, whose arrangements may no longer be necessary if the regime becomes elective.
Shared-service centers and German holding structures are affected disproportionately, since organizational integration is the criterion most often satisfied inadvertently through centralized management and administration.
Required Actions
- Re-examine your German Organschaft position now, at draft stage. If the regime becomes elective, the value of a clear, documented position rises sharply, and the analysis takes months rather than weeks in a group of any size.
- Model the consequences of declaring versus not declaring: intra-group supplies falling outside the scope of VAT within a group, single-return filing, cash-flow effects, and the treatment of partly exempt entities.
- Identify which German entity would act as Organträger and confirm it has the standing and the data to make and support the declaration.
- Confirm your ELSTER account arrangements and the mailbox monitoring behind them before January 1, 2027. Once assessments arrive electronically by default, an unmonitored ELSTER inbox becomes a missed-deadline risk — objection periods run from notification, not from when someone reads it.
- Re-run interest exposure on open German audit positions at 3.6 percent per annum rather than 1.8 percent.
- Track the bill through parliamentary passage. Provisions of an Annual Tax Act frequently change between Cabinet draft and enactment, and the Organschaft redesign is significant enough to attract amendment.
Practical Implications
If enacted in this form, the Organschaft change removes one of the more uncomfortable structural risks in European VAT. Retroactive reassessment of group status has forced groups to carry a contingent exposure they could neither quantify nor close. An election, made prospectively, converts that into a decision — and decisions can be documented, provisioned and defended.
It also has direct system consequences. Under an automatic regime, the VAT reporting perimeter can move without any system change having been made, which is why German VAT determination in SAP so often carries manual overlays. A declared perimeter, with dated effect, can be configured. Groups should expect to revisit tax code determination, intra-group billing treatment and the consolidation logic behind the German VAT return once the final text is known.
The ability to admit individual controlled entities at short notice with future effect is the sleeper provision. It changes acquisition integration materially: a newly acquired German entity could be brought into the group perimeter deliberately and on a known date, rather than drifting into it as integration progresses.
The electronic notification default is administratively minor and operationally sharp. Groups that currently rely on paper reaching a named person — common where German compliance is outsourced — need to establish who monitors the ELSTER inbox and how notifications reach the responsible tax owner within the objection period.
Expected Next Steps
The bill proceeds to the Bundestag and Bundesrat during the autumn 2026 session, with enactment typically before the end of the calendar year. The final text, and in particular any transitional rule governing existing Organschaften, is the point at which planning can be finalized. Groups should also watch for the Federal Ministry of Finance to issue an accompanying administrative circular once the Act is adopted.
How Can KGT Support You?
KGT is a specialist indirect tax technology firm working exclusively inside the SAP landscape. We deliver SAP-integrated e-invoicing add-ons for countries where a local mandate outpaces the standard SAP roadmap, and we implement and run SAP Document and Reporting Compliance (SAP DRC) where the standard solution is the right answer. Because we build and operate both, our advice on which route to take for a given country is not a sales position.
For the development described above, KGT typically helps clients in four ways: assessing the impact on the existing SAP configuration and interface build; carrying out the mapping and regression work against the current official specification version; managing the platform, provider or registration dependency; and running the resulting flows as a managed service, so that each release, schema version and validation change is absorbed for you rather than by you. To discuss what this means for your SAP landscape, contact KGT at
This publication is provided for general informational purposes only and does not constitute tax, legal, or professional advice. Please consult your advisor before acting on any information contained in this update.
