No Exemption without transportation of tools: ECJ provides clarity in Brose Prievidza (C-234/24)

 Introduction

Companies involved in manufacturing will often purchase specialised tooling so that their supplier can produce components for their business, with the tool often remaining on site with the supplier. Those parts are then dispatched from the location of the supplier to its customer in another Member State. In such cases, it is often possible, depending on the Member State in question, to zero-rate both the sale of the components and the sale of the tool, on the basis that the sale of the tool constitutes an ancillary supply to the zero-rated intra-Community supply of the parts.

However, the European Court of Justice (ECJ) recently issued a judgement in the case involving Brose Prievidza (C-234/24), addressing the VAT treatment of tooling supplies within intra-Community manufacturing chains, whereby it was ruled that where the tool remains in the supplier’s Member State and is not itself dispatched, the supply of the tool cannot be treated as ancillary to the zero-rated supply of the parts. Consequently, the zero-rating could not be applied in this case. The decision provides important clarification for businesses that purchase tools to be used by subcontractors in other EU Member States to produce parts for their operations.

Contexte :

The case involved three companies in the supply chain, namely IME Bulgaria (a Bulgarian tooling manufacturer), Brose Prievidza (the Slovakian customer and purchaser of the components) and Brose Coburg (the German based parent company of Brose Prievidza).

IME Bulgaria produced components for Brose Prievidza, which were dispatched from Bulgaria to Slovakia as intra-Community supplies, zero-rated for VAT. To manufacture these parts, IME Bulgaria used specialised production tooling that had been ordered by Brose Coburg.

In 2021, Brose Coburg sold the tool to Brose Prievidza and Bulgarian VAT was charged on the sale. Brose Prievidza subsequently sought a refund of the Bulgarian VAT under the EU VAT Refund Directive (2008/9/EC). The Bulgarian tax authorities rejected the claim, arguing that the tooling transaction should have been treated as zero-rated, since it was ancillary to the zero-rated intra-Community supply of components. This dispute led the national court to refer questions to the ECJ on whether the supply of the tool could be treated as an intra-Community supply or an ancillary supply to the zero-rated parts.

The Ruling of the ECJ

In its judgment of 23^rd October 2025, the ECJ held that the supply of the tool was a separate, taxable supply in Bulgaria, and not an intra-Community (ancillary) supply eligible for zero-rating.

The ECJ reasoned that for a supply to qualify as an intra-Community supply under Article 138(1) of the VAT Directive (2006/112/EC), the goods must be physically dispatched or transported to another Member State. Because the tool never left Bulgaria, this fundamental condition was not met.

Furthermore, the fact that the tool was used to produce components destined for another Member State was insufficient to treat the tool and the components as a single composite supply, purely because the supplies were linked economically. Each transaction must, in principle, be treated as a distinct and independent supply. The supply of the tool to Brose Prievidza had its own economic purpose and therefore could not be automatically regarded as ancillary to the supply of the parts produced with the tool.

While the national court questioned whether the transactions were artificially separated for VAT advantage, the ECJ found no evidence of this. The separate VAT treatment of the tooling and component contracts reflected genuine independent economic activities.

As a result, the sale of the tool remained subject to Bulgarian VAT, and could not benefit from the zero-rate applicable to the intra-Community supplies of parts. The refusal of a VAT refund had to be reconsidered by the national court in light of this conclusion.

Summary and Conclusion

The Brose Prievidza judgment reinforces a key VAT principle, namely that a tool does not automatically share the same VAT treatment of the parts it produces. For a supply of tooling to be zero-rated as an intra-Community delivery, the tool itself must be dispatched to another Member State or be so closely linked to the main supply that it forms a single, inseparable transaction.

In this case, the tool never left Bulgaria and served ongoing production. Subsequently, it was treated as an independent domestic supply with Bulgaria, subject to Bulgarian VAT.

For taxpayers across the EU, this case serves as a cautionary precedent, and it will be necessary for parties involved in this type of sales chain to consider certain points, such as:

• Movement of goods: Zero-rating depends on actual dispatch or transport of the goods.
• Treating tooling and the supply of parts as 2 separate transactions: A tooling sale will usually be distinct from the sale of the parts, unless the two are economically inseparable.
• Contract wording: Businesses should carefully draft contracts to clarify whether the tool is transferred, used temporarily, or forms part of an integrated supply, so that the correct nature of the supply can clearly be identified, and the correct VAT treatment applied.
• Refund Directive claims may be challenged: If VAT is charged on tooling in the supplier’s Member State, recovering that VAT can be complex for a non-established customer, unless the conditions for the refund are clearly met.

Ultimately, the Brose Prievidza case highlights the need for careful VAT planning in manufacturing supply chains involving tooling or moulds. Companies should not assume that a tool can be linked directly to a zero-rated intra-Community supply, thereby automatically granting it the same treatment. The decisive question remains: was the tool itself transported outside of the Member State of manufacture, and what is its independent economic purpose?

Should your company be involved in tooling transactions, and be impacted by this ruling, please feel free to reach out to us and our advisors will be happy to support you further with this issue.