EU General Court limits VAT deemed-supply rule for free tooling

The dispute concerned free equipment and moulds

Mercedes-Benz bought equipment and moulds and made them available without charge to Romanian manufacturers and subcontractors producing vehicle components. Romania’s tax authority assessed additional VAT of RON 12,174,729, arguing that Mercedes-Benz had not proved exclusive business use and that some manufacturers invoiced an intermediary rather than Mercedes-Benz directly. The dispute concerns Article 26(1) of Directive 2006/112/EC and its Romanian implementation in Article 271(1) and (4)(a) of Law No. 227/2015 and point 8(7) of the implementing rules.^[1]

Article 26 targets non-business consumption

Article 26(1) treats specified free use of business assets or free services as supplies for consideration where they serve private or other non-business purposes. The General Court said the provision prevents a taxable person that deducted input VAT from obtaining an advantage equivalent to untaxed final consumption. Conversely, an operation is not outside the business where it supports the business’s proper functioning, profitability, needs or interests.^[1][2]

Exclusive use matters more than the invoice chain

The Court noted that Mercedes-Benz retained ownership and control of tooling acquired to ensure that components met its specifications and to reduce manufacturing risk. If the components made with that equipment were used exclusively by Mercedes-Benz, providing the tooling served its own economic activity. An intermediary in the sales chain, and therefore the absence of a direct invoice between the component maker and vehicle manufacturer, did not change that conclusion. The Romanian court must determine whether exclusive use is proved.^[1]

Manufacturers need evidence of economic purpose

For multinational manufacturers, the judgment supports looking through contractual and invoicing form to the tooling’s economic purpose. Groups should retain tooling registers, supplier and subcontractor agreements, production records, component-flow evidence and controls showing that output made with the assets is used exclusively by the owner. The ruling does not protect dual-use tooling, production for third parties or arrangements where exclusive use cannot be evidenced.^[1]

No new filing deadline was created

The judgment creates no new VAT return, payment or registration deadline. It may nevertheless affect transaction coding, deemed-supply calculations, correction positions and ongoing disputes. The ruling addresses VAT only; it does not decide transfer-pricing, customs-valuation or direct-tax consequences, and the Romanian referring court must still apply the exclusive-use test to the evidence in the main proceedings.^[1][2]