CJEU: supply of components and supply of equipment for their manufacture not a single supply for VAT purposes
Are the supply of components (products) and the supply of equipment necessary for their manufacture a single supply subject to the same VAT treatment? According to a judgment of the Court of Justice of the European Union (CJEU), no. Since the equipment in question was not directly installed in the products, its supply should not constitute an ancillary supply to the principal supply (supply of components), and these two supplies should therefore not constitute a single indivisible economic supply.
German company Brose Coburg purchased equipment from Bulgarian company IME Bulgaria for the production of components for window regulators and door modules for cars. The equipment in question remained physically on the premises of IME Bulgaria in Bulgaria. Brose Coburg subsequently transferred the equipment to its Slovak affiliate, Brose Prievidza. The equipment remained physically on the premises of IME Bulgaria in Bulgaria, which used it to manufacture components for Brose Prievidza and later on supplied them to another EU member state as intra-Community VAT-exempt supplies.
As the equipment remained physically in Bulgaria, Brose Coburg charged Bulgarian VAT on the sale of the equipment, which Brose Prievidza requested to be refunded. The Bulgarian tax authority rejected the request on the grounds that the equipment constituted an ancillary supply to the supply of components that should also be exempt from VAT.
The CJEU first pointed out that since the goods did not physically cross the Bulgarian border, one of the conditions for applying VAT exemption to the intra-Community supply of goods had not been met, although the recipient of the goods was established in a member state other than that of the supplier.
The CJEU then addressed whether the supply in question constituted a principal and ancillary supply and should therefore constitute a single indivisible economic supply. The CJEU pointed out that each supply was provided by a different supplier and on the basis of a different contract. Furthermore, the equipment in question was not intended for the manufacture of a specific component or for incorporation into a component, but for series production. This suggests that the customer's intention in this case was rather to obtain certainty enabling them to secure their position vis-à-vis the supplier (particularly in the event of the supplier's insolvency) or the possibility to transfer this equipment if required by the production process, rather than to make better use of the supplied components.
The CJEU concluded that Brose Prievidza did not seek to obtain an unjustified tax advantage in this case, which, according to the CJEU, plays a key role in classifying the supply as having been artificially split. The CJEU therefore ruled that in the present case, each supply to the customer has its own function or purpose, and neither can be considered ancillary to the other. The CJEU therefore upheld Brose Prievidza's claim for a refund of the VAT in question.