Place all of the ingredients in a large bowl and knead until thoroughly combined. Unless you're using the egg yolks the dough will be pretty dry and flaky, like shortbread cookie dough. Shape the dough into a log and wrap with plastic wrap. Chill in the refrigerator for at least an hour.
Preheat the oven to 350 degrees F.
Cut off small pieces of the dough and shape them into crescents. Place the crescents onto a non-stick or parchment-lined cookie sheet. Bake on the middle rack for 12-15 minutes (depending on the size of the crescents) or until the edges begin to turn golden.
Combine the powdered sugar and vanilla sugar. Let the cookies sit for one minute and then use a sifter to dust them with the vanilla-powdered sugar while they're still hot. Let the cookies cool completely and then give them a second dusting.
Stored in an airtight container in a cool place, these cookies will keep for several weeks.
Vanillekipferl are traditionally shortbread cookies, meaning they're made with a high butter content and generally without the addition of egg. You'll find some recipes that call for eggs and as many or more that do not (especially ones in German). It's up to personal preference. Though adding an egg yolk or two will make the dough much easier to work with (softer and more pliable), I prefer the texture of Vanillekipferl made without eggs. The dough is very challenging to work with but the result in my opinion is far superior - the crumb is lighter, looser and crumbly with a wonderful melt-in-your-moth texture.