Federal Court of Justice (BGH) amends case law – preliminary VAT returns and annual returns to count as separate offences

Key statement of the judgement

Incorrect, incomplete and non-submitted preliminary VAT returns and incorrect, incomplete and non-submitted VAT annual returns for the same tax period are now separate procedural criminal offence  within the meaning of section 264(1) of the German Code of Criminal Procedure [Strafprozessordnung–StPO].

In making this change, the 1st Criminal Senate of the Federal Court of Justice (BGH) has abandoned its previous line and no longer considers preliminary returns and annual returns as “a unit” but as separate counts constituting multiple offences. 

Background to the proceedings

The ruling concerns a case of VAT evasion related to missing trader fraud. The accused, the effective director of T.E. GmbH, initially did not submit any preliminary VAT returns for 2014 after the business got into financial trouble and became involved in missing trader fraud. After a search was carried out, late preliminary returns were submitted, which contained incorrect figures – as did the later annual return. This led to several attempted and successful instances of tax evasion.

Federal Court of Justice (BGH) decision – several offences, not one

The Federal Court of Justice (BGH) amended the conviction of the lower court and quashed individual punishments.  What is particularly relevant is that:

• each incorrect preliminary VAT return counts as a criminal offence in its own right
• the annual return does not count as the “final act” but is also its own offence. 

In giving its grounds, the Federal Court of Justice emphasised that:

• a preliminary return is a tax return in its own right.
• preliminary returns and annual returns are processed in different assessment procedures.
• preliminary returns also typically count as stand-alone offences with regard to each other. 

The Federal Court of Justice has thereby ruled out a previous view, according to which preliminary returns could effectively be “absorbed into” the annual return.

Effects of the judgement

Transferable to other types of taxes, particularly payroll tax
The Federal Court of Justice’s principles not only concern VAT but can also be applied to other taxes that must be declared – especially payroll tax, because the Federal Court of Justice is arguing from the point of view of proceedings. It is the particular preliminary return for a certain period that is determinative. When the law provides for periodic declarations, these will also be seen as counts to be evaluated separately. The Senate also made reference to the embezzlement of pay. For pay, too, each month affected will count as a separate offence. Practically this means that

• an incorrect payroll return for January is not corrected by a corrected return in December.
• Each incorrect return can be sanctioned in its own right.

Tension with the new form field 500 starting from 2026 

This decision is particularly relevant because of the new form field 500 on the preliminary VAT return form. Giving incorrect or incomplete information in this form code (e.g. number “1”) may:

• make allegations more serious
• trigger reporting processes
• incriminate internal responsibilities more.

Since similar form fields have already been introduced for other types of taxes, it is also expected that the payroll forms will also be amended in the medium-term.

Potential effects from the tax authorities’ perspective

This decision may well increase the pressure on the tax authorities in auditing. 

Expectations:

• closer scrutiny of differences between preliminary returns and the annual return
• more intense reporting to criminal investigation bodies
• inclusion of form code 500 in automated checks
• more scrutiny during future tax audits (see draft Audit Regulations [APO])

Practical recommendations

This change to Federal Court of Justice case law considerably increases the criminal risk in the declaration process. Businesses should therefore:

• strictly observe their monthly reporting
• check and document each declaration professionally
• correct errors immediately under section 153 of the Fiscal Code [Abgabenordnung–AO] – using the new form codes accurately
• Make corrections by correcting preliminary returns and only submit their annual declaration once it has been adjusted to match.

Tax control frameworks

An effective tax control framework is crucial to reducing risks and ensuring that those responsible are absolved of liability. A well-structured health check for VAT and payroll tax can reveal vulnerabilities and clarify responsibilities. Grant Thornton Germany assists companies with:

• setting up and optimising a tax control framework
• Health Checks for VAT and payroll tax (parts 1 and 2 in the series)
• assessing new tax obligations, such as field code 500. 

Also read

Health Check Part 1: Tax risks in focus – why a VAT Health Check is the first step

Health Check Part 2: Payroll tax health check – identify risks and check processes

New codes in tax return forms