CJEU to Rule on VAT Refunds for Tooling in Cross-Border Manufacturing - C‑234/24

The complexities of the EU VAT system are frequently tested in cross-border manufacturing structures, where supply chains traverse multiple jurisdictions and legal obligations intersect. One area where tension arises is the classification and treatment of tooling – a key element in production processes that often does not travel across borders, yet plays a central role in facilitating intra-Community trade. The pending Case C‑234/24 before the Court of Justice of the European Union (CJEU) highlights these tensions with remarkable clarity. It presents a dispute between a Slovakian entity and the Bulgarian tax authorities concerning whether VAT on a tool that remains physically in Bulgaria but is used for cross-border component production should be refunded.

The opinion of Advocate General Juliane Kokott offers a structured and principled approach to interpreting the applicable directives and case law. Her position not only addresses the specific facts of the Brose Prievidza case but also touches on broader implications for businesses and tax authorities dealing with multi-jurisdictional supply chains. This article will examine the facts and legal issues in detail, unpack the legal framework, summarize the Advocate General’s findings, and evaluate the practical consequences of the Court’s eventual ruling.

Facts and circumstances

The case involves the Brose Group, a multinational company active in the automotive sector. Brose DE, a German entity within the group, commissioned the development of a specialized tool intended for the production of automotive components. This tool was delivered to and installed at the premises of IME Bulgaria, a third-party manufacturer contracted to produce parts for another group entity, Brose Prievidza s.r.o. (Brose SK), based in Slovakia.

After the tool was delivered to IME Bulgaria and production began, Brose DE transferred ownership of the tool to Brose SK. The transaction was invoiced with Bulgarian VAT, as the tool never physically left Bulgarian territory. The invoice reflected a real economic transfer of ownership. Brose SK subsequently applied for a refund of the Bulgarian VAT under Directive 2008/9/EC, which allows businesses established in one Member State to recover VAT paid in another.

The Bulgarian tax authorities rejected the claim. They argued that the tooling transaction formed an inseparable part of a broader intra-Community supply of goods – namely, the cross-border delivery of automotive components from IME Bulgaria to Brose SK. As such, the tool sale should be considered exempt under Article 138 of Directive 2006/112/EC. Because VAT on exempt supplies is not recoverable under Article 4(1) of the Refund Directive (2008/9/EC), the refund was denied.

This rejection was appealed, and the national court referred the question to the CJEU, asking whether VAT incurred on the tool could be refunded even if the tool itself did not leave the country but was associated with an exempt intra-Community supply. The case thus turns on two issues: whether the tool sale is exempt under Article 138, and whether the refund must be denied under the Refund Directive.

Legal framework: VAT Directive and Refund Directive

The two core pieces of legislation governing this case are Directive 2006/112/EC (VAT Directive) and Directive 2008/9/EC (Refund Directive).

Under Article 138(1) of the VAT Directive, Member States are required to exempt supplies of goods that are dispatched or transported from one Member State to another, when made to a taxable person in the destination country. A fundamental condition of this exemption is the physical movement of the goods from the Member State of origin.

Directive 2008/9/EC governs the procedure for VAT refund claims by taxable persons not established in the Member State of refund. Article 4(1) of this directive provides that VAT may not be refunded in respect of goods and services that are used for transactions which are exempt or for which the person is not entitled to deduction.

Accordingly, the classification of the tooling transaction as either exempt or taxable directly determines whether Brose SK is entitled to recover the VAT paid on its acquisition.

AG Kokott’s opinion: Clear lines, not functional blurring

In her Opinion of 22 May 2025, Advocate General Juliane Kokott firmly concluded that the tooling transaction must be treated as a separate, taxable supply. She emphasized that Article 138 requires the actual physical dispatch or transport of the goods across borders. Since the tool remained in Bulgaria, this condition was clearly not met.

Kokott explained that even if the tool was integral to the manufacture of components ultimately delivered cross-border, this functional relationship does not suffice to categorize the tool sale as part of an intra-Community supply. The principle of exemption under Article 138 is territorial in nature and depends on objective facts, not economic interdependence or group relationships.

The Advocate General also addressed whether the tool could be regarded as ancillary to the component supply, forming a single complex supply. While EU law does allow multiple supplies to be treated as a single transaction, Kokott noted that such treatment is limited to scenarios where the supplies originate from the same taxable person and form an indivisible whole from the recipient’s perspective. In this case, the tool was supplied by Brose DE, while the components were produced and delivered by IME Bulgaria. The transactions were independent, involved different suppliers, and were not presented to the customer as a bundled offer.

Kokott explicitly rejected the view that the tool sale was artificial or abusive. She found that the transaction reflected genuine economic activity and a legitimate transfer of ownership. The invoice issued by Brose DE was accurate and included the appropriate VAT charge. There was no evidence of tax avoidance, manipulation, or contractual fiction.

VAT refund eligibility: A straightforward case

Based on her finding that the tooling transaction did not meet the conditions for exemption, Kokott concluded that it must be treated as a taxable domestic supply in Bulgaria. Accordingly, the VAT charged on the invoice was legitimate and recoverable under the Refund Directive.

She underlined that Article 4(1) of the Refund Directive only prohibits refunds in relation to exempt transactions or those not entitling the claimant to deduct VAT. Since the tool sale was a taxable supply, this restriction did not apply. The Bulgarian tax authorities’ attempt to deny the refund based on a mischaracterization of the transaction therefore violated EU law.

Kokott further emphasized the importance of legal certainty and the neutrality principle in VAT law. Businesses must be able to rely on the formal and objective criteria laid out in the VAT Directive. The reinterpretation of supplies based on functional or economic association alone would undermine these principles and expose taxpayers to retrospective liability and arbitrary tax treatment.

Broader implications: legal certainty for cross-border manufacturing

If the CJEU adopts the Advocate General’s reasoning, the ruling will reinforce the territorial logic of VAT and restore legal predictability to cross-border supply arrangements involving tooling and other fixed assets. It will make clear that ownership transfers involving goods that remain physically within one Member State cannot be retroactively assimilated into cross-border supplies, even when such goods are essential to the production of items sold abroad.

The judgment would be especially relevant for businesses in the automotive, electronics, and industrial manufacturing sectors, where tooling often represents a substantial upfront investment and is placed with third-party manufacturers abroad. It would ensure that legitimate ownership transfers of tools and other production assets are not excluded from VAT recovery merely because the tools do not move.

In a broader policy context, the case underscores the risks of overextending the concept of composite supplies and supports a restrained, rule-based application of VAT exemptions. By drawing a clear line between supplies that are exempt and those that are not, the CJEU can help ensure that exemptions do not swallow the basic structure of VAT, which is built on neutrality and proportionality.

Conclusion: The border still matters

Case C‑234/24 serves as a reminder that in VAT law, substance must follow form. Advocate General Kokott’s opinion calls for a return to objective and territorial criteria when evaluating cross-border transactions. By insisting on the physical movement requirement of Article 138, she aims to prevent unwarranted extensions of exemption rules and preserve the integrity of the VAT system.

The Court’s eventual ruling will have lasting significance for how Member States assess tooling and other fixed asset transactions in international supply chains. It may also clarify the limits of functional interpretations that attempt to reframe distinct supplies as artificially unified. Until then, the case stands as an example of the importance of legal clarity in a complex and economically integrated internal market.