On 23 October 2025, the Court of Justice of the European Union (CJEU) entered an important judgment on the right to reclaim VAT charged on the purchase of tools to be used by somebody else to manufacture components for the tools’ owner (tooling arrangement).
In the case at hand (C-234/24), a Slovak company purchased certain tools in Bulgaria. The tools remained in Bulgaria where they were used to manufacture components for the purchaser (customer). As the tools were not transported out of Bulgaria, local VAT was applied on their sale but Bulgarian tax authorities refused to refund the tax to the purchaser on the ground that the supply of the tools was ancillary to intra-Community supplies of the components, and these are exempt from VAT.
CJEU disagreed, holding that since the tools did not leave the territory of the supplier’s Member State, the supply cannot be considered an intra-Community transaction. It was therefore unreasonable to deny a refund of VAT charged on their purchase.
CJEU reiterated that each transaction must, in principle, be regarded as a distinct and independent transaction, except where two or more elements or acts supplied by the taxable person to the customer are so closely linked that they form a single, indivisible economic supply. A supply of tooling may be held to be ancillary to the supply of components only if it does not constitute for the customer an aim in itself, but a means of better enjoying the principal supply provided. In the case at hand, it was not demonstrated that the supply of tooling was artificially split to obtain a tax advantage or that it was ancillary to the supplies of components.
But CJEU also referred to economic reality and to how the tooling arrangement is invoiced. According to the top European court, regard must be had to whether the supply of the tooling equipment has its specific economic purpose and is independent of the component supplies. In the present case, the fact that both transactions were invoiced separately and there is no tax abuse suggests that the supply of tooling should be considered to be independent.
While the case confirms that there is a right to VAT refund under tooling arrangements, you should crucially determine if the supply of the tools was an independent transaction.
If this issue pertains to your business and you are interested in our assistance, please contact us.
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