Germany proposes optional VAT grouping regime to improve certainty and reduce unintended fiscal unity arrangements
As part of the draft 2026 Annual Tax Act (JStG 2026), the Federal Cabinet has approved VAT grouping (Organschaft) regime reforms that would require businesses to actively elect into a VAT group rather than becoming one automatically.
If adopted by Parliament, the new rules would apply from 1 January 2030 – earlier drafts referred to 2029
See more in our German VAT guide.
End of automatic VAT groups
Under the current German VAT rules, a VAT group is created automatically where the statutory conditions for financial, economic and organisational integration are met. This has often created uncertainty, with businesses sometimes finding that a VAT group existed without ever intending to establish one.
The draft legislation introduces a new Section 2c of the German VAT Act (UStG) under which a VAT group would only come into existence after an explicit application or declaration is made to the tax authorities.
The underlying conditions for forming a VAT group would remain unchanged. Businesses would still need to demonstrate:
- Financial integration
- Economic integration
- Organisational integration
However, satisfying these conditions alone would no longer be sufficient.
Greater legal certainty following ECJ rulings
The reform follows recent judgments of the Court of Justice of the European Union and aims to improve legal certainty.
The declaration process should reduce disputes over whether a VAT group existed during previous periods and prevent businesses from unexpectedly falling within the regime because the integration tests were inadvertently met.
The draft also includes protection against retrospective unwinding. Where a VAT group is later found not to have met the qualifying conditions, the arrangement would not necessarily be cancelled retrospectively provided the error did not result in any loss of tax revenue.
Partnerships included
The draft legislation also responds to recent CJEU case law by allowing partnerships to participate as controlled entities within a German VAT group where the qualifying conditions are satisfied. This expands the scope of the German Organschaft rules beyond the more restrictive approach previously applied.
Impact on businesses
Although implementation has been delayed until 1 January 2030 (earlier drafts referred to 2029), multinational groups should not wait until the last minute.
Businesses with German operations should begin reviewing:
- Existing German VAT groups
- Whether an application will be required to preserve VAT group status
- Group ownership and management structures
- Shared service arrangements
- Centralised finance and IT functions
- Intercompany supplies and invoicing
- ERP and VAT determination systems
Companies that currently fall unintentionally within Germany’s automatic VAT grouping rules may welcome the additional certainty offered by the proposed election process.
