Judgment;Summary — ECLI:EU:C:2024:352
Date: 2024-04-25
Language of the case: German
Court formation: Sixth Chamber
Subject matter: Taxation;Value added tax
Procedure: Reference for a preliminary ruling
Origin: Germany

Translation C-207/23 – 1 
Case C-207/23 
Request for a preliminary ruling 
Date lodged: 
29 March 2023 
Referring court: 
Bundesfinanzhof (Germany) 
Date of the decision to refer: 
22 November 2022 
Defendant, appellant on a point of law and respondent in the appeal on a 
point of law: 
Finanzamt X 
Applicant, respondent in the appeal on a point of law and appellant on a 
point of law: 
Y KG 
  
[…] BUNDESFINANZHOF 
(Federal Finance Court) 
ORDER 
In the case of 
Finanzamt X (Tax Office X), 
defendant, appellant on a point of law and respondent in the appeal on a point of 
law, 
v 
Y KG, 
applicant, respondent in the appeal on a point of law and appellant on a point of 
law, 
EN 
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[…] 
in relation to turnover tax for 2008 
The XIth Chamber 
has decided as follows in its sitting of 22 November 2022, on the basis of the 
hearing held on 9 November 2022: 
Operative part of the order 
I. The following questions regarding the interpretation of Article 16 and 
Article 74 of Council Directive 2006/112/EC on the common system of value 
added tax (the VAT Directive) are referred to the Court of Justice of the European 
Union (ECJ) for a preliminary ruling: 
1. If a taxable person makes heat from its company available to another taxable 
person for the latter’s economic operations free of charge (in this case: allocation 
of heat from the cogeneration plant of an electricity provider for the benefit of an 
agricultural company for the purpose of heating asparagus fields), is this to be 
regarded as an ‘application by a taxable person of goods forming part of his 
business assets’ in the form of a ‘disposal free of charge’ within the meaning of 
Article 16 of the VAT Directive? 
Is the answer to this question dependent on whether the taxable person receiving 
the heat uses it for purposes that would entitle that person to a deduction of input 
tax? 
2. In the case of an application of goods (within the meaning of Article 16 of 
the VAT Directive), is the cost price within the meaning of Article 74 of the VAT 
Directive to be calculated solely on the basis of those costs that are subject to 
input tax? 
3. Does the cost price include only direct production or generation costs, or 
does it also include only indirectly attributable costs such as financing costs? 
II. […]. 
Grounds 
I. 
1 The applicant, appellant on a point of law and respondent in the appeal on a point 
of law (applicant) operates a biogas plant that produces biogas from biomass. In 
2008 (the relevant year), the biogas produced was used for decentralised 
electricity and heat generation in a connected cogeneration plant, where it was 
supplied to a combustion engine that powered a generator. 
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2 The majority of the electricity generated in this way was supplied to the general 
electricity grid and paid for by the operator of that grid. 
3 The heat also produced as a by-product of this process was partially reused in the 
production process. However, in the relevant year the applicant supplied most of 
the heat to Company A ‘free of charge’ as per a contract concluded on 
29 November 2007 for the drying of wood in containers and to B GbR (Company 
B) as per a contract concluded on 29 July 2008 for the heating of asparagus fields. 
Both contracts specified that the level of remuneration was to be determined on an 
individual basis according to the economic situation of the recipient of the heat, 
and was not to be specified in the contracts themselves. 
4 In the relevant year, in return for supplying 6 714 247 kWh of electricity, the 
applicant received from the grid operator, in addition to a minimum feed-in tariff 
of EUR 1 054 337.85 in accordance with Paragraph 8(1) of the German Gesetz für 
den Vorrang Erneuerbarer Energien (Law prioritising renewable energy; ‘the 
EEG’), as amended on 7 November 2006 (BGBl. (Federal Law Gazette) I 2006, 
2550), an additional amount in accordance with Paragraph 8(3) of the EEG 
(‘cogeneration bonus’) as the electricity generated by the applicant was considered 
to be electricity generated within the meaning of Paragraph 3(4) of the German 
Gesetz für die Erhaltung, die Modernisierung und den Ausbau der Kraft-Wärme-
Kopplung (Law on the preservation, modernisation and expansion of combined 
heat and power; ‘the KWKG’), as amended on 19 March 2002 (BGBl. I 2002, 
1092). This cogeneration bonus, which amounted to EUR 85 070.66, was included 
by the defendant, appellant on a point of law and respondent in the appeal on a 
point of law (the Finanzamt (Tax Office)) in the basis for calculation of taxable 
transactions in accordance with the VAT return filed by the applicant. 
5 As the applicant did not charge a fee to the recipients of the heat, the auditor 
commissioned to carry out an external audit of the applicant considered this to be 
a disposal of heat free of charge within the meaning of Paragraph 3(1b), first 
sentence, third indent, of the German Umsatzsteuergesetz (Law on turnover tax; 
‘the UStG’) for the benefit of A and B. Given the absence of a purchase price for 
the heat, the auditor used the cost price to determine the taxable amount for this 
application of goods in accordance with Paragraph 10(4), first sentence, first 
indent, of the UStG. Of the overall costs listed in the profit and loss statement 
amounting to EUR 1 104 453.35, the auditor calculated that the amount of 
EUR 384 791.55 (= 34.84%) was attributable to the supplied heat. On the basis of 
this taxable amount, the auditor determined that turnover tax in the amount of 
EUR 73 110.29 was due. 
6 The Tax Office followed up the results of the audit with a VAT notice for 2008, 
which was issued on 17 November 2011. An appeal was lodged against this 
notice, but this was rejected by the Tax Office as unfounded in its appeal decision 
of 1 August 2012. 
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7 In its original action the applicant invoked, inter alia, the fact that the cogeneration 
bonus was a consideration from a third party. The Finanzgericht (Finance Court) 
upheld the action filed by the applicant in first-instance proceedings. Upon appeal 
by the Tax Office, the Bundesfinanzhof (Federal Finance Court) set aside the 
ruling issued by the Finance Court in its judgment of 31 May 2017 – XI R 2/14 
(Collection of Decisions of the Federal Finance Court [BFHE], 258, 191, 
Bundessteuerblatt (Federal Tax Gazette) [BStBl] II 2017, 1024) and referred the 
case back to the Finance Court. It did not consider the cogeneration bonus paid by 
the electricity grid operator to the applicant to be remuneration for the heat 
provided by the applicant ‘free of charge’. Instead, it took the view that the 
remuneration received from the electricity grid operator should be regarded as 
consideration for the electricity supplied to it by the applicant. The Federal 
Finance Court concluded that a ruling could not yet be handed down in the case as 
it was not possible to decide how much tax should be applied to the disposal of 
goods free of charge by the applicant. It argued that this tax rate is to be calculated 
on the basis of Paragraph 10(4), first sentence, first indent, of the UStG in 
accordance with the principles of the Federal Finance Court judgments of 
12 December 2012 – XI R 3/10 (BFHE 239, 377, BStBl II 2014, 809) and 
16 November 2016 – V R 1/15 (BFHE 255, 354, BStBl II 2022, 777). Thus, the 
Finance Court was called upon to produce the necessary findings. 
8 In the proceedings at second instance the applicant appealed against the 
calculation made by the Tax Office in relation to the taxable amount for the heat 
supplied, inter alia on the ground that the amount of the application of goods 
should be calculated in accordance with Paragraph 10(4), first sentence, first 
indent, of the UStG on the basis of the cost price. The Finance Court upheld the 
action in part in the second instance. It reduced the amount of VAT owed, 
concluding that the VAT for the goods disposed of free of charge should be 
calculated in accordance with Paragraph 10(4), first sentence, first indent, of the 
UStG on the basis of their cost price, which is to be calculated using the so-called 
market value method, taking account of the market values of electricity and heat 
in the applicant’s specific location. 
9 In their appeals on points of law, the applicant and the Tax Office invoke a breach 
of substantive law. 
II. 
10 […]. [Stay of proceedings, referral] 
11 1. Legal context 
12 (a) EU law 
13 Article 16 of Council Directive 2006/112/EC of 28 November 2006 on the 
common system of value added tax (VAT Directive) provides as follows: 
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‘The application by a taxable person of goods forming part of his business assets 
for his private use or for that of his staff, or their disposal free of charge or, more 
generally, their application for purposes other than those of his business, shall be 
treated as a supply of goods for consideration, where the VAT on those goods or 
the component parts thereof was wholly or partly deductible. 
However, the application of goods for business use as samples or as gifts of small 
value shall not be treated as a supply of goods for consideration.’ 
14 Article 74 of the VAT Directive provides: 
‘Where a taxable person applies or disposes of goods forming part of his business 
assets, or where goods are retained by a taxable person, or by his successors, when 
his taxable economic activity ceases, as referred to in Articles 16 and 18, the 
taxable amount shall be the purchase price of the goods or of similar goods or, in 
the absence of a purchase price, the cost price, determined at the time when the 
application, disposal or retention takes place.’ 
15 Article 289 of the VAT Directive is worded as follows: 
‘Taxable persons exempt from VAT shall not be entitled to deduct VAT in 
accordance with Articles 167 to 171 and Articles 173 to 177, and may not show 
the VAT on their invoices.’ 
16 Article 302 of the VAT Directive provides: 
‘If a flat-rate farmer is entitled to flat-rate compensation, he shall not be entitled to 
deduction of VAT in respect of activities covered by this flat-rate scheme.’ 
17 (b) National law 
18 Paragraph 3(1b) of the UStG provides: 
‘The following shall be regarded as a supply of goods for consideration: 
1. the removal of an asset by a taxable person from his business for purposes 
other than those of that business; 
2. the contribution of goods without consideration by a taxable person to his 
employees for their private use, unless it is a token of appreciation; 
3. any other contribution of goods without consideration, with the exception of 
gifts of small value and samples of goods made for the purposes of the business. 
The precondition is that the goods or the component parts thereof were the subject 
of an input VAT deduction, in full or in part.’ 
19 Paragraph 10(4) of the UStG provides: 
‘The transaction is assessed as follows in the case of 
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1. a transfer of own goods within the meaning of Paragraph 1a(2) and 
Paragraph 3(1a), as well as in the case of a supply of goods within the meaning of 
Paragraph 3(1b), on the basis of the purchase price plus ancillary costs for the 
goods or for comparable goods or in the absence of a purchase price based on the 
production cost, in each case as at the transaction date; 
…’ 
20 Paragraph 8 of the EEG provides: 
‘(1) For electricity generated in plants with an output of up to and including 20 
megawatts that exclusively use biomass within the meaning of the legal measure 
referred to in subparagraph 7, the remuneration shall amount to […] 
(3) The minimum remuneration in accordance with subparagraph 1, first 
sentence, shall increase by 2 cents per kilowatt hour in the case of electricity 
within the meaning of Paragraph 3(4) of the Law on Cogeneration provided that 
the grid operator receives corresponding evidence thereof […]. In the case of 
mass-produced cogeneration plants with an output of up to 2 megawatts, 
manufacturer documentation indicating the thermal and electrical output thereof 
as well as the CHP coefficient may be provided in place of the evidence referred 
to in the first sentence.’ 
21 Paragraph 3(4) of the KWKG is worded as follows: 
‘(4) Electricity generated through cogeneration is the mathematical product of 
useful heat and the CHP coefficient of the cogeneration plant. In the case of 
cogeneration plants that do not have a system for the extraction of waste heat, the 
entire net electricity output shall be regarded as electricity generated through 
cogeneration.’ 
22 2. Concerning the first question referred 
23 (a) Subject matter of the question referred in comparison with other 
potential cases 
24 The first question referred concerns the interpretation of Article 16 of the VAT 
Directive. This provision corresponds to the former Article 5(6) of Sixth Council 
Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the 
Member States relating to turnover taxes – Common system of value added tax: 
uniform basis of assessment (Directive 77/288/EEC). Consequently, the present 
Chamber presumes that the ECJ case-law concerning Article 5(6) of Directive 
77/388/EEC must also be taken into account for the purpose of interpreting 
Article 16 of the VAT Directive. 
25 Article 16, first sentence, of the VAT Directive provides that the application by a 
taxable person of goods forming part of his business assets constitutes a supply of 
goods for consideration in four scenarios. These scenarios are all forms of 
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application. Namely, ‘application …for his private use [scenario 1] or 
[application] for [the use] of his staff [scenario 2], disposal free of charge 
[scenario 3] or [application] for purposes other than those of his business [scenario 
4]’. 
26 In the case in question, the applicant has constructed a plant in respect of which 
input tax may be deducted and which generates electricity that the applicant, as a 
taxable person, supplies for consideration in a taxable manner. At the very least, 
the applicant was entitled to a full input tax deduction on the construction and 
operating costs since the output of the plant was fully assigned to the company. 
[…] 
27 However, it is not clear what the legal consequences are for the additional heat 
produced by the plant. This heat can be used in various ways. For example, the 
taxable person who supplies the electricity for consideration in a taxable manner 
and has deducted input tax on the plant in full could allow the heat to escape 
unused (scenario A), use it as a natural person (sole trader) to heat his/her home 
(scenario B), provide it to staff for use in their private residences free of charge 
(scenario C), use it for its own sovereign purposes as a public law institution, for 
instance, to heat offices and thus for the activities in which it engages as a public 
authority within the meaning of Article 13(1), first subparagraph, of the VAT 
Directive (scenario D), supply it to nearby residents free of charge for use in their 
private residences (scenario E), or supply it to another taxable person free of 
charge for the purposes of that person’s business, whereby a further distinction 
could also be drawn between a situation where the recipient uses the goods in 
connection with business activities that entitle him/her/it to deduct input VAT in 
accordance with Article 168 of the VAT Directive, and a situation in which this 
entitlement arises as a result of Article 169 of the VAT Directive (scenario F). 
28 It is straightforward to determine how most of these scenarios should be treated 
under tax law. For example, in scenario A there is no application of goods, 
meaning that Article 16, first sentence, of the VAT Directive does not apply. In 
scenarios B and C, on the other hand, the criteria for application of Article 16, first 
sentence, scenarios 1 and 2, are met, although in the event of full assignment of 
the goods to the company there is no restriction on VAT deduction. On the basis 
of the ECJ judgment of 12 February 2009 in Case C-515/07, Vereniging 
Noordelijke Land- en Tuinbouw Organisatie, EU:C:2009:88, application of goods 
for purposes other than those of the business within the meaning of Article 16, 
first sentence, scenario 4, of the VAT Directive can be ruled out, which would 
likely lead to a restriction of the amount of VAT deductible on the construction 
and operating costs of the plant. In scenario E, the Federal Finance Court affirms 
that this is an example of disposal free of charge in accordance with Article 16, 
first sentence, scenario 3, of the VAT Directive which is subject to deduction of 
input tax in full, as otherwise this would result in untaxed final consumption 
(Federal Finance Court judgment of 25 November 2021 – V R 45/20, BFHE 275, 
392, paragraph 18). 
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29 However, it is not clear how scenario F, which corresponds to the present case, 
should be treated. The question arises as to whether in such a case an application 
of goods should be regarded as a ‘disposal free of charge’ within the meaning of 
Article 16, first sentence, of the VAT Directive, scenario 3. 
30 (b) Prior case-law of the ECJ on Article 16 of the VAT Directive 
31 The ECJ has already handed down numerous rulings on individual elements of 
Article 16 of the VAT Directive (Article 5(6) of Directive 77/388/EEC). 
32 For example, an application of goods is deemed to have occurred if an oil 
company disposes of goods to a purchaser of fuel in exchange for vouchers that 
the latter has obtained in varying quantities as part of a promotional campaign, 
depending on the volume of fuel purchased, on payment of the full retail price for 
fuel from the pump (ECJ, judgment of 27 April 1999 in Case C-48/97, Kuwait 
Petroleum, EU:C:1999:203, response to the second question regarding 
Article 5(6) of Directive 77/388/EEC). This pertains to application in the form of 
disposal free of charge in accordance with Article 16, first sentence, scenario 3, of 
the VAT Directive, as is clear from paragraph 24 of that judgment. In 
paragraph 22 of that judgment, the ECJ justifies the presence of an application of 
goods in particular on the ground that goods can still be deemed to have been 
applied even if they are disposed of for business purposes. 
33 As regards samples within the meaning of Article 16, second sentence, of the 
VAT Directive (and thus as regards Article 16, first sentence, of the VAT 
Directive, scenarios 1 and 2), the ECJ has previously ruled that equal treatment 
must be ensured between a taxable person who applies goods for his private use or 
for that of his staff and a final consumer who acquires goods of the same type, and 
that the taxation of such application of goods is designed to prevent situations in 
which final consumption is untaxed (ECJ, judgment of 30 September 2010 in 
Case C-581/08, EMI Group, EU:C:2010:559, paragraphs 17 and 18 with regard to 
Article 5(6) of Directive 77/388/EEC). 
34 Finally, the ECJ has ruled that works carried out by a taxable person for the 
benefit of a municipality for the extension of a municipal road used both by the 
public and by the taxable person do not constitute a supply of goods for 
consideration (ECJ, judgment of 16 September 2020 in Case C-528/19, 
Mitteldeutsche Hartstein-Industrie, EU:C:2020:712, response to the third question 
concerning Article 5(6) of Directive 77/388/EEC). With reference to its judgments 
in the cases of Kuwait Petroleum (EU:C:1999:203) and EMI Group 
(EU:C:2010:559), the ECJ ruled that application for purposes other than those of 
the business (within the meaning of Article 16, first sentence, of the VAT 
Directive, scenario 4) could be ruled out as the works had been carried out for the 
purposes of the taxable person, although it conceded that this does not preclude 
the application of other provisions (paragraph 64). Moreover, the ECJ ruled that, 
although the use of the extended road by public traffic does not preclude 
application of goods, the works for the extension of the road were carried out to 
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meet the needs of the taxable person in order to support heavy goods traffic 
(paragraph 65). In that case, the ECJ concluded there was no untaxed final 
consumption (paragraph 66), referring to the ‘actual end-use’ of the road which is 
primarily used by the taxable person, as compared with the ‘immaterial’ use by 
public traffic (paragraph 67 and paragraph 37). 
35 (c) Possible response to the first question referred 
36 (aa) Confirmation of application of goods on the basis of a literal 
interpretation 
37 On the basis of the wording of Article 16, first sentence, of the VAT Directive 
(scenario 3), disposal of goods free of charge has occurred in the case in question. 
The applicant has applied goods within the meaning of Article 15(1) of the VAT 
Directive, namely heat, which form part of its business assets. As the applicant 
was entitled to deduct input VAT on the taxable supply in return for consideration 
of electricity generated by the plant that also produced the heat, it was also 
entitled to deduct input tax on the heat generated. 
38 Moreover, the criteria for disposal are also met. ‘Disposal’ is to be defined as the 
transfer of goods being disposed of to another person under conditions that would 
otherwise constitute a supply of goods (Article 14(1) of the VAT Directive). This 
corresponds to the supply of heat for use by the recipient. 
39 The goods were also disposed of free of charge, as the heat was transferred to A 
and B without payment, contrary to the contractual agreements […]. 
40 (bb) Significance of final consumption 
41 It is unclear whether application of goods in the form of disposal free of charge is 
to be restricted by a further criterion that goes beyond the actual wording of 
Article 16, first sentence, of the VAT Directive (scenario 3), as this form of 
application could also serve to prevent untaxed final consumption (see II.2.b 
above). In that case, application in the form of disposal free of charge would 
presuppose a situation of untaxed final consumption. Such a restriction could be 
deduced from the ECJ judgment of 16 September 2020 in Case C-528/19 , 
Mitteldeutsche Hartstein-Industrie, EU:C:2020:712. Moreover, such a restriction 
would be supported by the principle of equal treatment in relation to Article 16, 
first sentence, of the VAT Directive (scenarios 1 and 2). 
42 However, such a restrictive interpretation raises the question of whether untaxed 
final consumption should be ruled out merely when the beneficiary of the 
disposal, being a taxable person, uses the goods disposed of for business purposes, 
or whether the goods disposed of must also be used for business purposes giving 
rise to an entitlement to deduct input VAT in accordance with Article 168 or 
Article 169 of the VAT Directive. An argument in favour of the latter 
interpretation is that otherwise the goods disposed of that entitled the disposing 
entity (in this case, the applicant) to deduct input VAT could be used by the 
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recipients (in this case, A and B) for purposes that do not give rise to an 
entitlement to deduct input VAT. 
43 The present Chamber has based its assessment of the first question referred on the 
assumption that the ECJ judgment of 16 September 2020 in Case C-528/19, 
Mitteldeutsche Hartstein-Industrie, EU:C:2020:712, does not definitively support 
a restrictive interpretation of the provision in the form of an additional 
requirement. Namely, the reason for which scenario 3 of Article 16, first sentence, 
of the VAT Directive was ruled out in that judgment may have been that the 
extension of the municipal road to accommodate heavy goods vehicles owned by 
the taxable person might be regarded as self-disposal by the taxable person, 
meaning that there was no disposal for the benefit of another person in any event. 
44 Another argument against a restrictive interpretation of the wording of the 
provision is that, in its judgment in Case C-48/97 (Kuwait Petroleum, 
EU:C:1999:203), the ECJ affirmed the existence of a disposal free of charge 
although the disposal was for the disposing party’s own business purposes (ECJ, 
judgment in Case C-48/97, Kuwait Petroleum, EU:C:1999:203, paragraph 22). 
Conversely, this could mean that disposal free of charge is deemed to have taken 
place even when the recipient thereof uses the goods for its business purposes. 
Moreover, the ECJ has ruled that the provision ‘does not draw any distinction on 
the basis of the tax status of the recipient of samples’ (ECJ, judgment of 
30 September 2010 in Case C-581/08, EMI Group, EU:C:2010:559, 
paragraph 52). 
45 Finally, account should be taken of the fact that application of goods in the form 
of disposal free of charge in accordance with Article 16, first sentence, of the 
VAT Directive (scenario 3) was designed by the EU legislature to have an 
independent function in comparison with private application in accordance with 
scenarios 1 and 2 of the first sentence of the same article. Consequently, it is 
doubtful whether disposal free of charge is subject to the same restrictions as 
private application, as applying the criterion of untaxed final consumption to 
scenario 3 of Article 16, first sentence, of the VAT Directive could undermine the 
independent function of this type of application. 
46 (cc) Consideration of the legal consequences 
47 It is also necessary to consider the legal consequences of the confirmation or 
rejection of a restrictive interpretation of the wording of the provision. 
48 (1) Restrictive interpretation 
49 If disposal free of charge within the meaning of scenario 3 of Article 16, first 
sentence, of the VAT Directive is not deemed to have taken place unless the 
criterion of untaxed final consumption has been met, then it falls to the disposing 
party to determine whether such final consumption is occurring on the part of the 
recipient. The disposing party therefore bears the risk of making an incorrect 
appraisal in this regard, as illustrated by the case in question. Namely, the 
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applicant was due to receive remuneration for supplying heat, whilst the heat was 
to be used by recipients A and B for specific purposes related to their business 
activities. The first part of this contract was not implemented as no payments were 
made for the supply of heat in either case. Moreover, there is also a possibility (at 
least in abstract terms) that the recipients (in this case, A and B) could use the 
service provided free of charge (in this case, heat) for purposes other than their 
business purposes, contrary to what had been agreed contractually. Consequently, 
the applicant bears the fundamental risk that sole trader A and business B might 
use the heat for their private residences, for example, which would represent a 
breach of contract. If the application of scenario 3 of Article 16, first sentence, of 
the VAT Directive depends on the use of the goods by the recipient (potentially in 
a manner giving rise to an entitlement to deduct input VAT), the disposing party 
would have to bear the risk of incorrectly appraising the situation. 
50 As such, it could be argued that the assessment of whether disposal free of charge 
has occurred should be based solely on the nature of the disposal and whether or 
not it was free of charge, in accordance with the wording of scenario 3 of 
Article 16, first sentence, of the VAT Directive, without further restricting this 
scenario by requiring untaxed final consumption to have taken place. 
51 (2) Literal application 
52 It is also necessary to consider the legal consequences of a literal application of 
the provision. In light of the principle of neutrality (see, for example, ECJ, 
judgment of 13 March 2014 in Case C-204/13, Malburg, EU:C:2014:147, 
paragraph 41), it could be regarded as inappropriate to classify an act of 
application as a disposal of goods free of charge if the taxable person receiving the 
goods uses them for business purposes that give rise to an entitlement to deduction 
of input VAT. The transfer of heat is subject to VAT even if the recipient of the 
service is not entitled to deduct this as input VAT. Hence, a breach of the 
neutrality principle could arise if taxation of the disposing party for the application 
of goods did not then give rise to a right to deduct VAT on the part of the recipient 
of the goods. 
53 However, it is unlikely that the recipient would not have been entitled to deduct 
VAT in this case. Article 16, first sentence, of the VAT Directive states that 
application is to be treated as a supply of goods for consideration. If the taxable 
person who is the recipient of the goods disposed of uses those goods in 
accordance with scenario 3 of Article 16, first sentence, of the VAT Directive for 
the purposes listed in Article 168 or Article 169 of the VAT Directive as if these 
goods were supplied to them, the substantive requirements for the deduction of 
VAT are met. As regards the additional requirement of an invoice in accordance 
with Article 178(a) of the VAT Directive, the disposing party could be regarded as 
being authorised to issue an invoice in accordance with Article 226 of the VAT 
Directive. This invoice would indicate in particular the taxable amount 
(Article 226(8) of the VAT Directive), the cost price of the application in 
accordance with Article 74 of the VAT Directive and the VAT amount payable on 
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that application (Article 226(10) of the VAT Directive). The invoice is not 
required to include a request for payment. Thus, deduction of VAT can be 
regarded as disposal free of charge in the case of application of goods without a 
payment having been made by the recipient of the goods to the disposing party. 
This is because, in the case of a disposal that is free of charge from the outset, the 
criteria of ‘non-payment …after the supply takes place’ specified in Article 90 of 
the VAT Directive is not met. This still applies even if the recipient of the goods 
disposed of pays the tax due on the application of goods, as such payment of tax is 
not classed as a consideration. 
54 Finally, in order to confirm that the recipient was entitled to deduct input VAT, it 
would be necessary to regard the VAT owed on the application as ‘VAT due or 
paid’ within the meaning of Article 168(a) of the VAT Directive (see ECJ, 
judgment of 13 January 2022 in Case C-156/20, Zipvit, EU:C:2022:2, 
paragraph 37). 
55 (d) Relevance of the first question referred to the outcome of proceedings 
56 Paragraph 3(1b) of the UStG is based on Article 16 of the VAT Directive, and 
corresponds to this provision (see Federal Finance Court, judgments of 16 October 
2013 – XI R 39/12, BFHE 243, 77, BStBl II 2014, 1024, paragraph 27 and of 
21 May 2014 – V R 20/13, BFHE 246, 226, BStBl II 2014, 1029). Both 
provisions stipulate that disposal free of charge is to be treated as a supply of 
goods for consideration if the VAT on these goods or components thereof was 
deductible in full or in part (Paragraph 3(1b), first sentence, third indent, and 
second sentence of the UStG; Article 16, first sentence, of the VAT Directive). In 
the present case, the heat supplied to A and B may be regarded as goods disposed 
of free of charge in this sense as the applicant was entitled to deduct VAT in full 
on the operation of the cogeneration plant and biogas plant. 
57 The Finance Court has not made any factual statements with regard to whether A 
and B are entitled to deduct VAT in full. It cannot be ruled out that A and B are 
SMEs or are beneficiaries of flat-rate compensation for agricultural and forestry 
producers. 
58 3. Concerning the second question referred 
59 (a) Significance of the chargeable event for the taxable amount 
60 Article 74 of the VAT Directive serves to realise the act of application of goods 
referred to in Article 16, first sentence, of the VAT Directive as it provides how 
the taxable amount for such application of goods is to be calculated. In the opinion 
of the present Chamber, this means that the objectives pursued by Article 16 of 
the VAT Directive should also be taken into account when interpreting Article 74 
of that directive. 
61 (b) Objectives of taxation on the application of goods 
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62 With regard to the act of application of goods, the ECJ has previously ruled that 
the purpose of this provision is ‘to ensure equal treatment as between a taxable 
person who withdraws goods from his business and an ordinary consumer who 
buys goods of the same type. In pursuit of that objective, Article 5(6) [of Directive 
77/388/EEC] prevents a taxable person who has been able to deduct VAT on the 
purchase of goods used for his business from escaping payment of VAT when he 
transfers those goods from his business for private purposes and from thereby 
enjoying advantages to which he is not entitled by comparison with an ordinary 
consumer who buys goods and pays VAT on them’ (ECJ, judgment of 17 May 
2001 in Joined Cases C-322/99 and C-323/99, Fischer and Brandenstein, 
EU:C:2001:280, paragraph 56). Therefore, it would ‘run counter to the objective 
of equal treatment’ if the provision on application of goods were to be interpreted 
as meaning that ‘where goods are allocated for the private purposes of the taxable 
person, the goods and the parts which have been incorporated in them were to be 
taxed as a whole, even though no input VAT was deductible when the goods were 
initially acquired and only the input VAT on the component parts acquired after 
purchase was deductible’ (ECJ, judgment of 17 May 2001 in Joined Cases 
C-322/99 and C-323/99, Fischer and Brandenstein, EU:C:2001:280, 
paragraph 75). 
63 (c) Significance of the chargeable event for the taxable amount 
64 If the objective pursued by the provision on application of goods of ensuring that 
‘the taxable person does not enjoy any advantage to which he is not entitled by 
comparison with an ordinary consumer’ (ECJ, judgment of 17 May 2001 in Joined 
Cases C-322/99 and C-323/99, Fischer and Brandenstein, EU:C:2001:280, 
paragraph 76; see also ECJ, judgment of 16 June 2016 in Case C-229/15, 
Mateusiak, EU:C:2016:454, paragraph 39) is also to be applied to Article 74 of 
the VAT Directive, this could mean that, in the calculation of the cost price, only 
taxable costs are to be taken into account since ordinary consumers who produce 
goods would also pay VAT only on these costs. This interpretation leads to the 
conclusion that a taxable person who produces goods does not enjoy an advantage 
to which they are not entitled by comparison with an ordinary consumer who 
produces goods in the event that costs not subject to input VAT (e.g., the costs of 
tax-free credit within the meaning of Article 135 of the VAT Directive) are not 
included in the calculation of the cost price. 
65 However, it is also necessary to take into account the purchase price, which 
according to Article 74 of the VAT Directive takes precedence over the cost price. 
In this case, it may not be appropriate to divide the purchase price into a taxable 
component and a non-taxable component. Moreover, the present Chamber points 
out that the tax administration operates on the assumption that costs not subject to 
input VAT are to be included in the calculation of the cost price (in accordance 
with Paragraph 10.6(1), fifth sentence, of the Umsatzsteuer-Anwendungserlass 
(German VAT Implementing Decree). This has been criticised in the legal 
literature ([…]). The Federal Finance Court has left this question open to date 
(see, for example, Federal Finance Court judgments in BFHE 275, 392, 
REQUEST FOR A PRELIMINARY RULING OF 22. 11. 2022 – CASE C-207/23 
 
14  
paragraphs 34 and 35; judgment of 15 March 2022 – V R 34/20, BFHE 276, 369, 
paragraph 26). 
66 (d) Relevance of the second question referred to the outcome of the 
proceedings 
67 The second question is also relevant to the outcome of the proceedings, since 
Article 74 of the VAT Directive provides that the taxable amount for goods or 
similar goods is to be only the cost price in the absence of a purchase price for 
similar goods (see ECJ, judgment of 23 April 2015 in Case C-16/14, Property 
Development Company, EU:C:2015:265, paragraph 37, and ECJ, judgment of 
28 April 2016 in Case C-128/14, Het Oudeland Beheer, EU:C:2016:306, 
paragraph 48). According to the case-law of the Federal Finance Court, this is the 
position in the present dispute since A and B are not connected to a heating 
network that would have allowed heat to be obtained from third parties for 
consideration (see Federal Finance Court, judgments in BFHE 239, 377, BStBl II 
2014, 809, paragraph 39, and in BFHE 276, 369, paragraph 16). Consequently, the 
cost price as specified in Article 74 of the VAT Directive is relevant to the 
outcome of the proceedings. If only those costs that are subject to input VAT are 
to be included in the cost price, this reduces the taxable amount for the application 
of heat and would result in the claim being upheld in part. 
68 4. Concerning the third question referred 
69 (a) Subject matter of the third question referred 
70 The third question referred seeks clarification as to whether the cost price includes 
only direct production or generation costs, or whether it also includes indirect 
costs (such as financing costs). 
71 The existing lack of clarity in this regard stems from the remarks made by the ECJ 
in its judgment of 23 April 2015 in Case C-16/14, Property Development 
Company, EU:C:2015:265, paragraph 40, regarding interest on borrowed capital. 
According to this judgment, it is irrelevant whether the purchase price (which 
takes precedence over the cost price) of similar buildings includes interim interest 
which may have been paid during their construction. This is justified with the 
argument that, unlike the criterion of cost price, the criterion of the purchase price 
of similar goods enables the tax authority to base its calculation on the market 
price of that type of goods at the time at which the application of the building at 
issue was made, without having to examine in detail which components of the 
value gave rise to those prices. 
72 This suggests that when using the cost price, on the other hand, it is necessary to 
determine which components of the value gave rise to this price. Therefore, unlike 
when determining the purchase price, when calculating the cost price it may be 
relevant whether, for example, there is interest on borrowed capital that may need 
to be taken into account. This interpretation is unlikely to be upheld, however, 
given how difficult it would be to take account of indirect costs (such as 
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administrative overheads) in the cost price. The inclusion of such costs (e.g. 
financing costs) therefore runs counter to the objective that the present Chamber 
believes should be pursued, namely simplifying the calculation of the value of 
applications of goods. 
73 (b) Relevance of the third question referred to the outcome of the proceedings 
74 As in the case of the second question referred, the third question referred is 
relevant to the outcome of the proceedings. If financing costs are not to be 
included in the cost price, this reduces the taxable amount for the application of 
heat and therefore results in a smaller tax burden for the applicant and in the 
applicant’s claim being partially upheld. 
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