Alvarez & Marsal Tax Update – 22 May 2025
CJEU: AG Opinion on VAT treatment of tooling in intra EU group structures (Case C234/24 – Brose)
On May 22, 2025, Advocate General Juliane Kokott delivered her opinion in Case C234/24, involving the Slovak subsidiary of the Brose Group [1]. The case raises important questions about the VAT treatment of tooling structures commonly used in cross-border manufacturing within corporate groups.
The dispute centers on the supply of specialized tooling, ordered by a German parent company, manufactured by a Slovak subcontractor, and subsequently sold to the Slovak subsidiary. Although the tooling remained in Slovakia and was used to produce automotive components, the German parent treated the supply as an exempt intra EU delivery. The Slovak tax authority, however, denied the exemption and claimed local VAT was due.
The Advocate General addresses the following key legal questions:
1. Is this a case of abuse of law or artificial structuring?
Answer: No.
AG Kokott finds no abusive practice. The arrangement reflects genuine economic activity, as the tooling is needed for production and remains operationally in place. The mere fact that the parent company initially acquires and pays for the tooling, and later transfers it to the subsidiary, does not constitute a VAT abuse.
2. Is the tooling an ancillary supply to the (later) supply of automotive parts?
Answer: No.
The AG clearly separates the supply of tooling from the supply of parts manufactured using the tooling. These are distinct transactions, with different timing, consideration, and recipients. As such, the tooling cannot be treated as a dependent or ancillary supply to the product sale. Instead, it is a standalone supply of goods.
3. Can an intra EU supply be VAT exempt if the goods (tooling) never physically leave the Member State?
Answer: No.
The exemption for intra EU supplies under Article 138 of the VAT Directive requires actual cross-border movement of goods. The mere transfer of ownership across legal entities, without physical shipment to another Member State, does not meet the conditions for exemption. Even if the supply were ancillary (which it is not), the exemption would still fail due to the lack of movement.
4. Can the purchaser deduct input VAT if the supplier charged VAT on what was (arguably) intended as an intra EU supply?
Answer: Not addressed.
This is arguably the most practically relevant question — especially for taxpayers facing retrospective VAT assessments. Unfortunately, the Advocate General does not take a position on this point. It remains for the CJEU to clarify whether input VAT deduction is permissible, where VAT is charged but the underlying supply is (or should be) exempt.
Why this matters
The case is of high practical relevance for automotive suppliers and industrial manufacturers operating cross-border tooling and production models. Misclassifying the nature of a tooling transaction — or failing to document movement correctly — can trigger:
Unintended VAT liabilities
Blocked input VAT deductions
Risks in refund procedures
Challenges in contract design and ERP logic
Recommended actions:
- Review tooling and manufacturing agreements to clarify ownership, supply chains, and responsibility for transport
- Reassess VAT treatment of tooling provided to or used by subcontractors in other EU countries
- Ensure documentation of any physical movement (or absence thereof) and contractual intentions
- Monitor the upcoming CJEU ruling to evaluate its implications for your current and future structures
Your contact at Alvarez & Marsal Tax:
Matthias Luther
[1] CJEU, Advocate General Kokott, opinion delivered on May 22, 2025 – case C-234/24 - Brose Prievidza, ECLI:EU:C:2025:383, https://curia.europa.eu/juris/document/document.jsf?text=&docid=300616&pageIndex=0&doclang=EN&mode=req&dir=&occ=first&part=1&cid=4195889
