ECJ provides clarity on the VAT treatment of tooling supplies

The ECJ judgment of 23. October 2025 (Case C-234/24, Brose Prievidza) brings new clarity to the VAT treatment of tooling supplies, as they are known.

These are supplies of special tools, forms and devices that are indispensable in serial production – such as in the automotive industry. These tools often remain with the subcontractor, while the commissioning party has ownership of them. For VAT the question frequently arises whether the supply of such tools is to be treated as a distinct supply or is merely an ancillary supply or part of a later single supply of the components.

It is this repeated question that the ECJ answered in this case. The Court qualified the intra-group supply of the tools that remained in the subcontractor’s country as a distinct unmovable supply, while the component supplies were assessed as VAT-exempt intra-EU supplies.

Initial referred question

The question referred concerned the VAT treatment of an intragroup sale of tools. Specifically, the question was whether the supply of a tool (comparable to the supply of finished components) was to be classed as a VAT-exempt intra-EU supply or as a distinct supply to be taxed in the country of manufacture.

The ECJ particularly examined the preconditions for VAT-exempt intra-EU supplies, the distinction between principal and ancillary supply and the possibility of claiming a refund of input tax.

Case

In the procedure in question, a Bulgarian supplier (“IME Bulgaria”) manufactured a special tool for the Brose Group. The customer was Brose Coburg (Germany), registered for VAT in Bulgaria (“Brose DE”). The tool was invoiced including Bulgarian VAT and became the property of Brose De while remaining physically with the manufacturer in Bulgaria.

The manufacturer then used the tool to produce components that were supplied to Brose Prievidza (Slovakia, “Brose SK”). In a further step, Brose DE sold the tool to Brose SK, charging Bulgarian VAT. Brose SK’s application for a refund of input tax was rejected by the Bulgarian authorities because they took it to be a single economic supply.

Key statements of the ECJ’s judgement

The ECJ rejected this view of the tax authorities and clarified that the supply of the tool constituted a distinct taxable supply in the state of manufacture.

Central statements of the Court:

1. Not a VAT-exempt intra-EU supply without movement of goods
   Tax exemption is predicated on actual cross-border movement of goods. If the object remains in the state of manufacture, exemption is excluded.
2. Stand-alone supply despite functional connection
   The functional connection to the later supply of component parts does not suffice to assume a single supply if the tool fulfils its own economic purpose.
3. No artificial splitting
   Artificial splitting is only given if the splitting is purely formal and makes no economic sense. This was not the case here.
4. Ancillary supply only as an exception
   An ancillary supply is only given if the object has no independent use to the acquirer.

Consequences and recommendations for practice

The decision is of high relevance to the automotive and supplier industry. Companies should carefully check tooling procedures – including contract drafting, invoicing and input VAT refunds – particularly if tools remain in the state of manufacture.

How and whether the German tax authorities will apply the judgement remains to be seen. Until then it is recommended to critically check supply chains and contracting models in order to prevent unexpected tax burdens and increase legal certainty.

_{This article was written by our experts Nadiia Pavlenko and Katharina Lehner.}