VAT Treatment of Tooling Sales in the European Union

A Definitive Look at the Court of Justice of the European Union’s (CJEU) Judgment in Case C-234/24

In a preliminary ruling on 23 October 2025—Brose Prievidza, spol. S. r.o. (Case C-234/24)— the Court of Justice of the European Union (CJEU) delivered much-needed clarity on the VAT treatment of tools used for producing spare parts. This issue is a frequent and complex challenge in the automotive subcontracting sector, and the court’s decision provides a strategic framework for businesses navigating these transactions. Aline Rodrigues, Senior Manager, VAT Consulting at Ryan, provides her analysis below.

The Case at a Glance

The case involved a  transaction within the Brose Group and its supplier, IME Bulgaria.

  1. Initial Sale: The Bulgarian company, IME Bulgaria, sold tooling to Brose Coburg (Germany). The tooling physically remained in Bulgaria for IME’s use in manufacturing components for Brose Prievidza (Slovakia).
  2. Component Supply: The components manufactured using this tooling were then shipped from Bulgaria to Slovakia.
  3. Resale of Tooling: Over a year later, Brose Coburg resold the tooling to Brose Prievidza in Bulgaria, applying Bulgarian VAT.
  4. VAT Refund Request: Brose Prievidza requested a refund of this Bulgarian VAT under Directive 2008/9/EC.

The Bulgarian tax authorities decisively rejected the refund. Their position was that the VAT was wrongly invoiced because the sale of the tooling should have qualified as an intra-community supply, which is exempt from Bulgarian VAT under Article 138 of the VAT Directive.

The dispute escalated through the Bulgarian courts until the Supreme Administrative Court referred the matter to the CJEU. The central question was whether a business could claim a VAT refund in such a complex, cross-border scenario.

Key Findings: CJEU Rules on Tooling as a Separate Supply

The CJEU's analysis provides a clear and robust framework for assessing these transactions. The court reiterated that for a supply to qualify as an intra-community supply, a physical movement of the goods out of the supplier's member state is required. An exception exists only if the supply is economically inseparable from an exempt main service, rendering it “ancillary.”

When Is a Supply “Ancillary”?

The Bulgarian administration argued that the tooling and component supplies were economically linked and that treating them separately would be artificial. The CJEU firmly disagreed, stating that an economic connection alone is not sufficient to merge two distinct deliveries into a single operation. The court distinguished this case from previous rulings where artificial arrangements were designed to secure an undue tax advantage.

Applying its established interpretation of complex services, the CJEU defined an ancillary supply as one that is not an aim in itself but merely a means of better enjoying the principal supply. While the tooling was a precondition for the component supply, the court noted several factors that pointed toward it being a separate, principal supply:

  • Security for the Purchaser: The purchase of the tooling could provide the buyer with security against the supplier's insolvency.
  • Operational Flexibility: The owner could transfer or move the tooling if needed.
  • Independent Purpose: If the tooling is intended for the entire production life cycle of the goods, rather than a single intra-community shipment, it has its own distinct purpose.

To resolve the issue, the CJEU directed the Bulgarian court to examine the economic and commercial reality reflected in the contractual relationships. The fact that the German entity centralised tooling orders because the ultimate production site was unknown at the time of purchase suggested that the tooling and component deliveries were separate stages in the production process, rightly governed by separate contracts. Distinct invoicing for the equipment and components further reinforced their status as independent supplies.

Strategic Implications for EU Supply Chain and VAT Planning

The CJEU's ruling focuses on a specific scenario but has broader implications for the supply chain and tax planning. The core principle is clear: the contractual and economic reality of a transaction is paramount.

In more complex supply chains where tooling sales are accompanied by parallel sales of the parts themselves, businesses must diligently identify whether these successive transactions constitute a single, global supply. Determining which transaction qualifies for the VAT exemption is critical for compliance and cost efficiency.

The judgment also highlights inconsistencies in how different EU member states approach this issue:

  • In Italy, administrative guidance allows a domestic sale of tools to be treated as an exempt intra-community supply, but only if there is a single contract and the tools are eventually transported out of Italy or scrapped. If the tooling remains in Italy for future production, it must be invoiced with Italian VAT.
  • In France, under current administrative guidelines (BOFIP), the sale of tools to a client outside the EU is exempt from French VAT, provided the parts made with those tools are exported to non-EU countries. But a similar exemption does not exist when the parts are shipped from France to EU member states.

These approaches in France and Italy appear inconsistent with the CJEU's new ruling, which mandates a case-by-case verification based on the economic and commercial reality. Factors like separate invoicing and different customers for the tooling and parts are now key indicators of separate supplies. The Italian and French tax administrations may need to refine their guidelines to align with the court's guidance. For past transactions, the ability for taxpayers to rely on previous, more favourable administrative guidelines remains uncertain and legally complex.

The Path Forward

Tooling Contracts for VAT Exemption

For companies operating across the EU, this judgment is a call to action. We recommend a thorough review of all contractual and invoicing arrangements related to the sale and purchase of tooling. By structuring these agreements to reflect their true economic purpose, you can secure a potential VAT exemption and avoid unnecessary local VAT registration or complex refund claims.

This ruling empowers businesses to align their tax strategy with their operational reality, ensuring they pay only what they owe—not a euro more than required. By proactively managing these complexities, you can liberate capital and maintain a decisive competitive advantage.