
Case C-207/23 before the Court of Justice of the European Union (CJEU) deals with the application of VAT under Directive 2006/112/EC, in relation to the free supply of biogas-generated heat by Y KG to other companies for activities such as wood drying and asparagus field heating. Following an inspection, the German tax administration treated these supplies as subject to VAT and calculated the taxable amount on the basis of the cost price of the heat provided. The case escalated to the Bundesfinanzhof (German Supreme Tax Court) and, in the face of doubt, referred a question to the CJEU for a preliminary ruling on the interpretation of EU legislation, summarised as follows:
The first question examines whether the free supply of heat from one business to another for use in economic activities is classified as a transfer to third parties free of charge under Article 16 of the VAT Directive. This provision addresses how a company’s assets intended for non-business uses should be treated for tax purposes, equating them with commercial transactions. The Court concluded that yes, such a free supply is considered similar to a supply for consideration, noting that it is irrelevant whether the recipient of the heat uses it in activities that allow it to deduct VAT for this classification. This implies that, for VAT purposes, the free supply is treated as if it were a sale or transfer, thus ensuring the neutrality of the tax.
The second and third questions of the CJEU preliminary rulings address how to calculate the taxable amount of VAT for free transfers of goods, as provided for in Article 74 of the VAT Directive. This article specifies that the taxable amount is based on the “purchase price of such goods or similar goods or, in the absence of the purchase price, on the cost price, as assessed at the time the transactions are carried out.” The CJEU’s interpretation determines that the cost price must include both direct and indirect costs, such as financing costs, and not be limited only to costs where VAT has been incurred.
This approach not only captures all costs associated with the production of the good, but also reflects the actual value of the good at the time of its transfer. This principle is consistent with the previous case law of the CJEU, such as the preliminary questions referred in the Marinov (C-142/12) and Het Oudeland Beheer (C-128/14) cases, as they emphasised that the taxable amount must reflect the market value of an asset, considering all relevant value elements.
Ultimately, the interpretation of the CJEU also influences Spanish legislation, given that VAT is a harmonised tax at European level. In the context of Spanish VAT, Article 79(5)(a) of the law provides that where there is no market value or purchase price for goods, the taxable amount must be determined as “an amount equal to or greater than the purchase price of such goods or similar goods or, in the absence of a purchase price, at their cost price, determined at the time of delivery.” This provision reflects the principles established by the CJEU, where both direct and indirect costs are considered for the taxable base, and we recommend that companies review whether they are making free supplies of goods or services and ensure that the taxable base of these transactions is declared in accordance with the criteria established by the CJEU.