Go Beyond

In a circular dated December 29, 2025, the Federal Ministry of Finance announced changes to fields in, among other things, the • 2026 advance VAT return • 2026 yearly VAT return • special advance payment of VAT for 2026 • income tax return 2025.

In its judgement of 30 July 2025 (file ref. X R 7/23), the Federal Fiscal Court (BFH) held that the filing deadline for the 2019 tax return that was extended by statute does not have the same effect as an official deadline extension as defined by section 109 of the Fiscal Code (AO). Consequently, if it is filed late, it is compulsory to charge a late-filing penalty under sec-tion 152(2) AO. The Federal Fiscal Court held that the exception under section 152(2) no. 1 AO, which would have allowed a discretionary decision under section 152(1) AO, was ruled out because the conditions were not met. The claimant was not able to derive the possibility of a discretionary decision from the FAQs on “Corona” (taxes), the legal character of which the Federal Fiscal Court also commented on in its judgement.

A change is pending to the VAT treatment of public services that constantly run at a loss. The new Federal Ministry of Finance Circular of 20 January 2026 makes the requirements much stricter on the nature of consideration, business activity and thus also the deductibility of input VAT for operations that constantly run at a loss. In future, public services will have to meet stricter checks, particularly regarding the cost/income ratio and the link to subsidies. The new legal situation implements the decisions of the European Court of Justice (ECJ) and the Federal Tax Court (Bundesfinanzhof – BFH). It compels legal persons under public law (municipalities, cities, local government), but also other private operators outside the public sector, to examine and reorientate the interests they hold under private law (e.g. municipal utilities [Stadtwerke]) in private legal forms, their structures and financing models.

The legislature has prescribed correspondence principles for both hidden profit distributions and hidden contributions. Taxation at the company level thus has an impact on tax exemptions for shareholders (in the case of hidden profit distributions, Sect. 8b(1) sent. 2 ff. of the Corporate Income Tax Act). Conversely, the treatment at the shareholder level has an impact on the company's income (in the case of hidden contributions, Sect. 8(3) sent. 4 ff. of the Corporate Income Tax Act). The Federal Fiscal Court has now published a surprising ruling.