The Court of Justice of the European Union (CJEU) decided on Oct. 23, 2025, that the value-added tax was correctly charged to a manufacturer in the automotive sector on a supply of equipment (toolings) produced by a subcontractor and used by it for manufacturing components for the manufacturer, where the toolings had not physically left the subcontractor’s Member State. CJEU VAT C-234/24 (Brose Prievidza). The manufacturer was entitled to a refund of the VAT under Article 4(b) of Council Directive 2008/9 that details rules for the refund of VAT for nonresident businesses that are not registered for VAT in a member state where the VAT is due. According to the CJEU, the conclusion could only be different if the supply of toolings had been artificially split from the supply of components produced using the toolings.
The decision demonstrates that the VAT treatment of tooling supplies remains a facts-based exercise.
Legal Context
EU Law.
Directive 2008/9 provides that entitlement to an input VAT refund is to be determined pursuant to Article 170 of Directive 2006/112, which details the rules for a VAT refund as applied in the Member State of refund. Under Article 4(b) of Directive 2008/9, refunds do not apply to VAT amounts that have been invoiced in respect of supplies of goods the supply of which is, or may be, exempt under Article 138 of Directive 2006/112.
Article 170 of Directive 2006/112 allows for a VAT refund for transactions relating to activities carried out outside the Member State in which the tax was due or paid, in respect of which VAT would be deductible if the transactions had been carried out within that Member State. VAT is refunded to taxable persons who are not established in the Member State in which they purchase goods and services or import goods subject to VAT but who are established in another Member State, in accordance with the rules in Directive 2008/9.
Bulgarian Law.
Article 53(1) of the Bulgarian VAT law (ZDDS) provides for a zero rate of tax for intra-community supplies. Under Article 81, VAT tax paid shall be refunded to taxable persons who are not established in the national territory but who are established and registered for VAT purposes in another Member State in respect of the goods they have purchased that they have received in Bulgaria.
Regulation No. N-9 governs the conditions and procedures for a refund of VAT to a taxable person not established in the Member State of refund but established in another Member State. This regulation does not apply to amounts which correspond to improperly invoiced VAT, including intra-community supplies carried out and exports. This regulation transposes Article 4(b) of Directive 2008/9 into Bulgarian law.
Background of Case
Three companies were involved in the transactions. Brose group, to which Brose Prievidza and Brose Coburg belonged, produced mechatronic systems of the bodies and interiors of cars intended for car manufacturers.
- Brose Prievidza, (Brose SK), the end customer, was a Slovakian manufacturer of automotive components (windows and door systems).
- IME Bulgaria (IME BG) was a Bulgarian component manufacturer and manufactured the toolings at issue that were used to manufacture components.
- Brose Coburg (Brose DE) was a German company registered for VAT purposes in Germany and Bulgaria that ordered the toolings from IME BG.
Components sent from Bulgaria to Slovakia: In order to manufacture its products, Brose SK purchased from IME BG components which were delivered from Bulgaria to Slovakia and thus treated as VAT-exempt intra-EU supplies.
Toolings at issue remained in Bulgaria: In 2020, Brose DE placed an order with IME BG for the production of toolings to manufacture the components later supplied to Brose SK. The toolings were needed for machines that produced Brose SK’s components. The toolings owned by Brose DE remained in Bulgaria where they were used to manufacture the components ordered by Brose SK.
In 2021, Brose DE sold the toolings to Brose SK, issued an invoice for the sale with Bulgarian VAT, and Brose SK paid the VAT. Although the toolings became the property of Brose SK, they remained with IME BG, which used them exclusively to manufacture the components intended for Brose SK.
In 2022, Brose SK applied for a refund of the Bulgarian VAT, but the Bulgarian tax authority rejected the refund application. On appeal, the Administrative Court of Sofia City found that as the supply of the toolings was ancillary to the intra-community supplies of the components produced by IME BG, the toolings were subject to the same tax regime and the two transactions had been artificially split.
Under Article 53(1) of the ZDDS, the supply of the toolings should have been subject to a zero rate of tax and Brose DE should not have entered the VAT on the invoice to Brose SK for their supply. Consequently, in accordance with Article 1(2) of Regulation No. N-9, which transposes Article 4(b) of Directive 2008-9 into Bulgarian law, the court held that Brose SK was not entitled to a refund of the VAT.
Brose SK challenged that decision before the Supreme Administrative Court that referred the case to the CJEU for a preliminary ruling.
Main Issue
The essential question referred to the CJEU for a preliminary ruling was: Does Directive 2008/9 confer a right to obtain a refund of VAT paid which is claimed by the recipient of a supply of toolings where the subject of the supply has not left the territory of the supplier’s Member State and the supply of toolings has been artificially split from the intra-community supply, to the same recipient, of goods manufactured by means of the toolings?
The CJEU broke down the issue into two questions:
- Whether a supply of goods may be regarded as an intra-community supply, even if the goods at issue have not left the Member State of their supplier; and
- Whether the supply of equipment may be regarded as forming part of a single, indivisible supply or as being ancillary to intra-community supplies of goods produced using that equipment.
CJEU’s Reasoning
The CJEU did not agree with the Administrative Court of Sofia City that the supplies by IME BG of the components and the toolings were artificially split. But the Bulgarian court was uncertain whether the supply of the equipment at issue, which it considered to be ancillary to the supply of components, could be classified as a transaction that was exempt or likely to be exempt from VAT where the toolings had not been transported outside Bulgaria.
First, the CJEU examined whether the supply of goods may be regarded as an intra-community supply, even if the goods at issue have not left the Member State of their supplier, and whether the supply of toolings may be regarded as forming part of a single indivisible supply or as being ancillary to intra-community supplies of goods produced using that equipment.
The CJEU stated that the right to a refund is a fundamental principle of VAT established by EU legislation, and, in principle, may not be limited. Directive 2008/9 provides that entitlement to an input VAT refund is to be determined pursuant to Directive 2006/112 as applied in the Member State of refund.
However, in accordance with Article 4(b) of Directive 2008/9, this Directive does not apply to amounts of VAT which have been invoiced in respect of supplies of goods the supply of which is or may be exempt under Article 138 of Directive 2006/112.
Under Article 138(1)(a) of Directive 2006/112, Member States are to exempt the supply of goods dispatched or transported to a destination outside their respective territory but within the EU, by or on behalf of the vendor or person acquiring the goods, on the condition that the goods are supplied to another taxable person, or to a non-taxable legal person acting as such in a Member State other than that which dispatch or transport of the goods begins.
According to settled case law, the exemption of a supply of goods for the purposes of Article 138 of Directive 2006/112 becomes applicable only if the right to dispose of the goods as owner has been transferred to the person acquiring the goods, if the supplier establishes that those goods have been dispatched or transported to another Member State of supply.
Physical movement of supply is required to be considered intra-community supply. The CJEU stated that without the physical movement of the goods to another Member State, a supply cannot be classified as an intra-community supply.
Physical movement of acquisition is required to be considered intra-community acquisition. Similarly, an acquisition can be classified as an intra-community acquisition only if the goods have been transported or dispatched to another Member State, to the person acquiring them. The conditions for Article 138(1) of Directive 2006/112 cannot be fulfilled if the goods being supplied to the person acquiring them have not physically left the territory of the Member State of supply.
The toolings at issue were the subject of two sales: the right to dispose of the toolings was transferred from (1) IME BG to Brose DE, and (2) Brose DE to Brose SK. But the toolings have not been dispatched or transported to successive persons acquiring them, and have remained in the territory of the Member State of the supplier.
The conditions for applying Article 138 of Directive 2006/112 are not satisfied, and the refund of the VAT charged on the acquisition of those goods cannot be excluded by applying Article 4(b) of Directive 2008/9.
The CJEU found that the sale of toolings and automotive components manufactured using the toolings were two separate supplies. Therefore, the VAT on toolings had been correctly charged and was refundable.
The CJEU did not agree with the referring court that the supply of the tools and the intra-community supplies of the components manufactured using these tools were artificially split.
No abuse of law. The CJEU concluded that buying tools centrally reflects genuine economic activity and does not constitute tax abuse or attempt to obtain undue tax advantage. In this case, Brose group had a cash flow disadvantage by structuring the sale of tools centrally via Brose DE and by not treating the sale of tools as a VAT-exempt single supply ancillary to the sale of components.
The CJEU stated that from an economic standpoint, it is reasonable for the buyer to acquire the toolings independently, as doing so safeguards against potential future supply disruptions. Within the Brose group, Brose DE undertakes centralized toolings purchases and later assigns ownership to another group member (Brose SK in this case).
Local supply of toolings cannot be considered an exempt intra-EU supply of goods.
Wrongly charged VAT should generally not be refundable or deductible. Article 4(b) of the Directive 2008/9 specifically provides that VAT invoiced in respect of supplies of goods the supply of which is, or may be, exempt under, Article 138 of Directive 2006/112, is not refundable.
The CJEU states that without the physical movement of the goods to another EU Member State, a supply cannot be classified as an intra-Community supply.
The toolings did not become part of the components that left the EU Member State.
The CJEU concluded that since the conditions for exemption are not satisfied, i.e., the tools never left the EU Member State and the supply of them is not subject to the reverse charged VAT in another EU Member States, this supply cannot be considered an intra-community supply of goods.
Consequently, the VAT on the sale of toolings had been correctly charged and the refund of this VAT should have been granted unless the supply of tools is forming part of a single supply, or is being ancillary to a principal supply comprising intra-Community supplies of goods produced using these tools.
Supply of toolings is treated independently from supply of components. The CJEU concluded that there was no single supply in this case and the supply of toolings must be treated as a supply independent from the VAT-exempt supply of components.
The CJEU reasoned that even if the sole purpose of the toolings was to manufacture components, that link between those two supplies does not mean that those supplies must be regarded as constituting a single supply for VAT purposes.
Supplies by different suppliers may be regarded as a single supply only in case of an artificial splitting. The CJEU noted that based on CJEU case law, two supplies provided by two independent suppliers may be regarded as a single supply only if an artificial division of those supplies has taken place. However, this was not the case here.
No artificial splitting of supplies. Two supplies in this case (i.e., one of toolings and another of components) each arise not from an intentional splitting of the supply, but from separate contracts concluded with two independent suppliers, so that, taken in isolation, those supplies are subject to their own economic logic. Furthermore, in the present case, Brose SK did not seek to obtain an undue tax advantage resulting from a different tax treatment of the supplies concerned, whereas that element plays an essential role in the classification of transactions as being artificially split.
The toolings were not integrated into the components. The toolings are not intended to produce a single part or a single batch of parts or be integrated into the components. This can contribute to showing that the supply of the toolings is not so closely linked to a supply of components to form a single, indivisible economic supply.
Toolings constitute an aim in itself. A supply is regarded as ancillary to a principal supply if the supply does not constitute for customers an aim in itself, but a means of better enjoying the principal supply provided. It follows that, if, on the contrary, those supplies each have a specific function or purpose for the customer, one cannot be classified as ancillary in relation to the other. The aim of tools is to ensure the buyer against the subcontractor’s insolvency and any supply chain disruptions and, consequently, the supply of tools constitutes an aim in itself.
Buying toolings centrally had economic reasons. The fact that Brose DE initially acquired and paid for the tools, and later transfers them to another company of Brose group, is justified by business reasons and does not constitute VAT abuse.
The CJEU observed that the tools were first sold by IME BG to Brose DE because it had a central role in acquiring tools that were meant to secure the buyer of the goods’ position against potential future supply chain disruptions. The ownership of the tools enabled the buyer to transfer or move those tools should the production process so require. At the time of ordering tools, the group entity whose production needed the components manufactured using the toolings was not yet known. However, after that entity had been determined, the transfer of the ownership of toolings to Brose SK took place.
Practical Implications
The CJEU decision clarifies the VAT treatment of toolings supplies, when supplies may be considered single or separate, and confirms that the analysis remains a facts-based exercise.
Understanding the VAT treatment of toolings activities is important to determine who in the supply chain should be charged and pay input VAT, the amount of the VAT, and whether any of the entities has the right to deduct or receive a refund for the VAT.
Some EU countries treat similar toolings supplies as ancillary to the supply of goods manufactured using the toolings and consequently VAT-exempt if the toolings are used to produce the goods that leave the country after production. These EU Member States need to reconsider the VAT treatment of such tooling supplies.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.
Author Information
Dr. Aiki Kuldkepp is a senior manager in the VAT and Customs group of the International Tax Services practice.
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