The advance VAT return is a key instrument used by the German tax authorities in the area of indirect taxation to ensure that tax is collected promptly throughout the year. It affects not only traditional companies but can also be relevant for nonprofit organizations.
In most cases, it must be submitted monthly, which greatly increases the risk of tax evasion during the year if it is submitted late. It also entails numerous risks under substantive law, which can be very serious.
Every advance VAT return is a tax assessment – albeit subject to review – and thus directly leads to Sections 370 et seq. of the German Fiscal Code (Abgabenordnung, AO), which contain provisions on tax evasion. Based on past cases of tax evasion in the area of value added tax, the tax authorities are continuing to work on raising awareness of the importance of correct advance VAT returns and thus correct tax assessments.
New advance VAT return form from 2026
In a letter dated December 29, 2025, the German tax authorities published a new advance VAT return form to be used from January 2026. In addition to a few changes in the area of tax rates and some formal adjustments, a new code number 500 has been added to line 55. This line lists four circumstances which, when activated, automatically result in the advance VAT return being removed from the automated process and forwarded to the case worker for individual review.
The new code 500 has also been introduced in line 12 of the form for applying for a permanent extension and registering for special advance payments.
These circumstances lead to individual review of the advance VAT return in Germany
The tax authorities list the following four circumstances in code number 500, which must be activated if the requirements are met:
- Tax issues could not be declared.
- The advance VAT return contains items in which VAT is deliberately declared in accordance with a legal opinion that differs from that of the tax authorities.
- The advance VAT return contains items that require in-depth review by personnel.
- There are several reasons mentioned above.
This means that the taxpayer must inform the tax authorities of any of the above cases during the advance return procedure. As a result, the advance VAT return is checked individually and the approval of the tax assessment is delayed.
This can lead to lengthy correspondence with the tax authorities, as they will ask questions that must be answered. The outcome of such reviews cannot be predicted. Nor can the duration of the review be estimated. It is interesting to note that there is no option for “Other.”
This is particularly relevant for NPOs, as the distinction between taxable business operations, special-purpose operations, and non-commercial activities is often complex and can result in different VAT assessments.
Review of advance VAT returns does not have to be negative
The review of facts by the tax authorities also has a number of positive aspects. For example, it strengthens legal certainty in the VAT assessment procedure if the tax authorities give their approval to certain case constellations. In a tax audit, this means that the circumstances of the case can no longer lead to new facts if this issue is taken up again.
Furthermore, it may be in the taxpayer’s interest if they are uncertain about a tax case and wish to have the treatment of the transactions in question reviewed by the tax authorities. This in turn gives them legal certainty and protects them from the legal consequences of tax evasion (Section 370 et seq. AO).
Requesting information is nothing new
However, requesting information about the facts of a case in the advance VAT return procedure is nothing new. Even now, if the tax authorities treat VAT matters differently, the tax authorities must be clearly and unambiguously informed of the facts in an accompanying letter in order to avoid unpleasant surprises during a tax audit. This often occurs in EU matters that the German legislature has either not transposed into German law or has only transposed incompletely into German law.
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If the taxpayer wishes to benefit from the VAT advantages of the EU regulations, they must either enclose a cover letter with the advance VAT return in which they point out the different treatment, or they must prepare the advance VAT return in accordance with German law and lodge an appeal against the tax assessment, justifying this appeal with EU law. The taxpayer can initiate the same procedure if they are unsure about the treatment of certain circumstances. Even if tax-relevant circumstances have not yet been declared, the taxpayer must disclose this to the tax authorities in order to avoid suspicion of tax evasion (Section 370 et seq. AO).
Information must already be provided separately in the advance VAT return
What is new about code 500 is that the tax authorities require this information to be provided in the tax return, specifically the four circumstances defined here. This will mean that tax assistants who prepare the advance VAT return in accordance with substantive law by preparing the accounts will have to be trained to recognize if any of the circumstances apply. This can be quite challenging in complex accounting situations.
Risk management by the tax authorities
The background to the changes seems to be – as explained in the introduction – that the tax authorities are further developing their risk management in this area. The automation of the value added tax process has reached its limits here.
NPOs should review their accounting processes
Taxpayers – especially NPOs – should now review their processes to ensure that they meet the new requirements of the tax authorities. This includes, in particular, the qualified management and training of accountants to make them aware of these issues. In addition, care must be taken to ensure that the documentation of unclear issues is complete. It must also be ensured that the software used meets these new requirements. Specialists must be trained accordingly.
The first advance VAT return in 2026 was already due on February 10, 2026, by which time the changes would have to be implemented in a legally compliant manner. Entries in number code 500 should be subject to dual control. It should also be borne in mind that circumstances entered in code 500 from 2026 onwards may already have occurred in earlier periods. If no agreement can be reached with the tax authorities on certain issues in 2026, it is essential to check whether similar cases have occurred in earlier periods in order to avoid a reduced tax assessment that cannot be corrected in time.
If you are an NPO in Germany and are unsure whether certain circumstances fall under the new code number 500, please contact us – early clarification creates legal certainty and avoids unnecessary risks.
