ECJ C-207/23 (Finanzamt X) – Questions – Heat supplied free of charge to another company

The ECJ has released the preliminary ruling request of the case C-207/23 (Finanzamt X).


Article in the EU VAT Directive

Articles 16 and 74 of the EU VAT Directive 2006/112/EC.

Article 16 (Taxable transaction – Supply of goods)
The application by a taxable person of goods forming part of his business assets for his private use or for that of his staff, or their disposal free of charge or, more generally, their application for purposes other than those of his business, shall be treated as a supply of goods for consideration, where the VAT on those goods or the component parts thereof was wholly or partly deductible.
However, the application of goods for business use as samples or as gifts of small value shall not be treated as a supply of goods for consideration.

Article 74 (Taxable amount)
Where a taxable person applies or disposes of goods forming part of his business assets, or where goods are retained by a taxable person, or by his successors, when his taxable economic activity ceases, as referred to in Articles 16 and 18, the taxable amount shall be the purchase price of the goods or of similar goods or, in the absence of a purchase price, the cost price, determined at the time when the application, disposal or retention takes place.


  • The applicant, appellant on a point of law and respondent in the appeal on a point of law (applicant) operates a biogas plant that produces biogas from  biomass. In 2008 (the relevant year), the biogas produced was used for decentralised electricity and heat generation in a connected cogeneration plant, where  it was supplied to a combustion engine that powered a generator.
  • The majority of the electricity generated in this way was supplied to the general electricity grid and paid for by the operator of that grid.
  • The heat also produced as a by-product of this process was partially reused in the  production process. However, in the relevant year the applicant supplied most of the heat to Company A ‘free of charge’ as per a contract concluded on 29 November 2007 for the drying of wood in containers and to B GbR (Company
    B) as per a contract concluded on 29 July 2008 for the heating of asparagus fields. Both contracts specified that the level of remuneration was to be  determined on an individual basis according to the economic situation of the recipient of the heat, and was not to be specified in the contracts themselves.
  • In the relevant year, in return for supplying 6 714 247 kWh of electricity, the applicant received from the grid operator, in addition to a minimum feed-in tariff of EUR 1 054 337.85 in accordance with Paragraph 8(1) of the German Gesetz für den Vorrang Erneuerbarer Energien (Law prioritising renewable energy; ‘the EEG’), as amended on 7 November 2006 (BGBl. (Federal Law Gazette) I 2006, 2550), an additional amount in accordance with Paragraph 8(3) of the EEG (‘cogeneration bonus’) as the electricity generated by the applicant was considered to be electricity generated within the meaning of Paragraph 3(4) of the  German Gesetz für die Erhaltung, die Modernisierung und den Ausbau der Kraft-WärmeKopplung (Law on the preservation, modernisation and expansion of  combined heat and power; ‘the KWKG’), as amended on 19 March 2002 (BGBl. I 2002, 1092). This cogeneration bonus, which amounted to EUR 85 070.66,  was included by the defendant, appellant on a point of law and respondent in the appeal on a point of law (the Finanzamt (Tax Office)) in the basis for  calculation of taxable transactions in accordance with the VAT return filed by the applicant.
  • As the applicant did not charge a fee to the recipients of the heat, the auditor commissioned to carry out an external audit of the applicant considered this to be a disposal of heat free of charge within the meaning of Paragraph 3(1b), first sentence, third indent, of the German Umsatzsteuergesetz (Law on turnover tax; ‘the UStG’) for the benefit of A and B. Given the absence of a purchase price for the heat, the auditor used the cost price to determine the taxable amount for  this application of goods in accordance with Paragraph 10(4), first sentence, first indent, of the UStG. Of the overall costs listed in the profit and loss statement amounting to EUR 1 104 453.35, the auditor calculated that the amount of EUR 384 791.55 (= 34.84%) was attributable to the supplied heat. On the basis of
    this taxable amount, the auditor determined that turnover tax in the amount of EUR 73 110.29 was due.
  • The Tax Office followed up the results of the audit with a VAT notice for 2008, which was issued on 17 November 2011. An appeal was lodged against this notice, but this was rejected by the Tax Office as unfounded in its appeal decision of 1 August 2012.
  • In its original action the applicant invoked, inter alia, the fact that the cogeneration bonus was a consideration from a third party. The Finanzgericht (Finance  Court) upheld the action filed by the applicant in first-instance proceedings. Upon appeal by the Tax Office, the Bundesfinanzhof (Federal Finance Court) set  aside the ruling issued by the Finance Court in its judgment of 31 May 2017 – XI R 2/14 (Collection of Decisions of the Federal Finance Court [BFHE], 258,  191, Bundessteuerblatt (Federal Tax Gazette) [BStBl] II 2017, 1024) and referred the case back to the Finance Court. It did not consider the cogeneration bonus paid by the electricity grid operator to the applicant to be remuneration for the heat provided by the applicant ‘free of charge’. Instead, it took the view that the remuneration received from the electricity grid operator should be regarded as consideration for the electricity supplied to it by the applicant. The Federal Finance Court concluded that a ruling could not yet be handed down in the case as it was not possible to decide how much tax should be applied to the disposal of goods free of charge by the applicant. It argued that this tax rate is to be calculated on the basis of Paragraph 10(4), first sentence, first indent, of the UStG in accordance with the principles of the Federal Finance Court judgments of 12 December 2012 – XI R 3/10 (BFHE 239, 377, BStBl II 2014, 809) and 16 November 2016 – V R 1/15 (BFHE 255, 354, BStBl II 2022, 777). Thus, the Finance Court was called upon to produce the necessary findings.
  • In the proceedings at second instance the applicant appealed against the calculation made by the Tax Office in relation to the taxable amount for the heat supplied, inter alia on the ground that the amount of the application of goods should be calculated in accordance with Paragraph 10(4), first sentence, first indent, of the UStG on the basis of the cost price. The Finance Court upheld the action in part in the second instance. It reduced the amount of VAT owed, concluding that the VAT for the goods disposed of free of charge should be calculated in accordance with Paragraph 10(4), first sentence, first indent, of the UStG on the basis of their cost price, which is to be calculated using the so-called market value method, taking account of the market values of electricity and  heat in the applicant’s specific location.
  • In their appeals on points of law, the applicant and the Tax Office invoke a breach of substantive law.


  • 1. If a taxable person makes heat from its company available to another taxable person for the latter’s economic operations free of charge (in this case:  allocation of heat from the cogeneration plant of an electricity provider for the benefit of an agricultural company for the purpose of heating asparagus fields), is this to be regarded as an ‘application by a taxable person of goods forming part of his business assets’ in the form of a ‘disposal free of charge’ within the  meaning of Article 16 of the VAT Directive? Is the answer to this question dependent on whether the taxable person receiving the heat uses it for purposes that would entitle that person to a deduction of input tax?
  • 2. In the case of an application of goods (within the meaning of Article 16 of the VAT Directive), is the cost price within the meaning of Article 74 of the VAT
    Directive to be calculated solely on the basis of those costs that are subject to input tax?
  • 3. Does the cost price include only direct production or generation costs, or does it also include only indirectly attributable costs such as financing costs?

See also

AG Opinion







Cited ECJ Cases

  • Vereniging Noordelijke Land- en Tuinbouw Organisatie C-515/07
  • Kuwait Petroleum C-48/97
  • EMI Group C-581/08
  • Mitteldeutsche Hartstein-Industrie C-528/19
  • C-204/13
  • Zipvit C-156/20
  • C-322/99 en C-323/99
  • Property Development Company C-16/14
  • Het Oudeland Beheer C-128/14

Reference to the case in the other EU MS


Join the Linkedin Group on ECJ VAT Cases, click HERE

For an overview of ECJ cases per article of the EU VAT Directive, click HERE



VAT news
VAT news


  • vatcomsult