Comments on ECJ C-234/24: VAT Refund on Tooling Not Automatically Excluded for Cross-Border Equipment Sales

Physical Movement Requirement: The Court confirmed that an intra-Community supply can only be VAT-exempt if the goods are physically transferred to another Member State. In the case of Brose Prievidza, the tooling remained in Bulgaria, leading to a domestic transaction subject to Bulgarian VAT.
Independent Transactions: The Court emphasized that each supply must be treated independently unless they are so closely linked that they form a single transaction. The supply of tooling and the supply of parts were deemed distinct, with their own economic purposes, rejecting the Bulgarian authorities’ argument of them being an artificial split.
Implications for VAT Refunds: The ruling clarifies that VAT charged on genuine transactions does not guarantee deductibility or refund. The sale of tooling within a single Member State does not qualify as an intra-Community supply, reinforcing the need for clear differentiation in VAT treatment for independent transactions.

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VAT treatment of tooling (specific production equipment) in the automotive supply chain and the right to a VAT refund

Case Overview: The case involved three companies: Brose Prievidza (Slovakia), the end customer; IME Bulgaria (Bulgaria), the manufacturer of tooling; and Brose Coburg (Germany), which ordered the tooling. Brose Coburg invoiced IME for tooling that remained in Bulgaria and later sold it to Brose Prievidza, including Bulgarian VAT.
Tax Authority Rejection: The Bulgarian tax authorities denied Brose Prievidza’s request for a VAT refund, arguing that the supply of the tooling was “artificially split” from the supply of parts, which were exempt intra-Community supplies. They contended that the tooling should also be exempt and thus no VAT refund was warranted.
CJEU Ruling: The Court of Justice of the European Union (CJEU) ruled that Brose Prievidza is entitled to a VAT refund, stating that the supply of tooling is a distinct domestic supply in Bulgaria, separate from the parts supply. Since the tooling did not leave Bulgaria, it could not be classified as an exempt intra-Community supply, confirming that the VAT was correctly invoiced and the refund was justified.

The EU Court of Justice ruled that refusing a VAT refund on equipment delivered to a taxpayer established in a different EU member state than the state of purchase is against EU law.
This applies even if the equipment has not physically left the supplier’s member state.
However, if the delivery of the equipment is considered an indivisible economic transaction or ancillary to a main transaction (such as intra-community supplies of goods made with that equipment), the VAT refund can be refused.
The case involved Brose companies in Slovakia, Germany, and Bulgaria, with the Bulgarian tax authority initially denying the VAT refund.
The ruling clarifies VAT refund rights in cross-border tooling transactions, especially in the automotive supply industry.

Separate Supplies of Tooling and Components: The Court ruled that the sale of tooling and the components manufactured using that tooling are considered two distinct supplies. The Bulgarian authorities’ claim that they constituted a single, economically indivisible supply was rejected, as the tooling remained in Bulgaria, thus disqualifying it from being classified as an intra-Community supply.
Artificial Separation Not Established: The Court emphasized that while transactions can sometimes be treated as a single complex transaction if their division is deemed artificial, in this case, the separation was legitimate and based on two distinct contracts between different taxpayers. There was no evidence of tax advantage or intent to artificially split the transactions.
Economic Reality Considered: The assessment of the transactions also took into account the economic reality, noting that the tooling had an independent purpose, was not solely tied to the production of specific components, and could be used for various manufacturing purposes over time. The Court highlighted that the arrangement between the companies did not indicate an artificial separation but reflected legitimate commercial practices.