McDermott Will & Schulte, a global law firm

Recent case law from the Court of Justice of the European Union (CJEU) confirms a restrictive approach to treating multiple elements as a single supply for VAT purposes.

The court continues to emphasize that each supply is, in principle, distinct and independent, and it remains cautious where taxpayers seek to extend favorable VAT treatment, such as exemptions or reduced rates, through bundling.

The legal framework (Frenetikexito, C 581/19, 2021)

General principle

As a rule, VAT is charged on each individual transaction, and every supply must be regarded as distinct and independent.

There are three recognized exceptions to the general rule. Each allows what would otherwise be multiple independent supplies to be treated as a single supply for VAT purposes.

First exception: single complex supply

A single complex supply exists where two or more elements are so closely linked that, objectively, they form a single indivisible economic supply that it would be artificial to split.

The perception of the average consumer is key in this determination. A single complex supply generally arises where the elements are indivisible in economic terms and serve a single purpose, as may be indicated by the absence of separate access or separate invoicing.

Second exception: dependent ancillary supply

A supply is ancillary where it is not an end in itself for the customer, but a means of better enjoying the principal supply. Unlike a single complex supply, it remains technically separable but is secondary and follows the VAT treatment of the principal element.

Again, the perception of the average consumer can be key. An ancillary supply has no distinct economic interest from the principal supply and only complements or supplements it, which may be reflected in the relative value of the different elements of the transaction.

Third exception: closely related activities

The VAT Directive also recognizes certain “closely related activities” which, while independent supplies, share the exemption of an exempt principal supply to secure its full effectiveness, particularly in the healthcare sector.

In contrast to dependent ancillary supplies, closely related activities may be provided by a different taxable person, do not require identification of the supplier or recipient, and their exemption is justified by the need to avoid additional costs that would undermine the exempt activity.

Recent CJEU case law

Promotional elements typically treated as ancillary (Deco Proteste, C 505/22, 2023)

A low-value gift offered with a subscription was considered ancillary, as its purpose was purely promotional.

Takeaway: Marketing incentives generally follow the principal supply.

Subsequent contingent elements treated as separate supplies (Companhia União de Crédito Popular, C 89/23, 2024)

Auction sales of assets pledged as a security to a credit transaction were held to be independent from the credit transaction, as they pursued a distinct objective.

Takeaway: The mere fact that one supply is subsequent to and contingent on another does not make it ancillary to that other supply.

Ancillary services do not automatically follow principal supplies (J-GmbH e.a., C 409/24 to C 411/24, 2026)

Member States may apply a reduced VAT rate only to the core element of a bundled supply (e.g., hotel accommodation), even where other elements (e.g., breakfast, parking, leisure access, and Wi Fi) are included in a single “all-inclusive” price.

Takeaway: Member States may apply a reduced rate selectively to identifiable, concrete aspects of a bundle (in this case in relation to short-stay accommodation, but not ancillary services), provided that (i) national rules rely on objective, clear and precise criteria to identify the reduced-rate elements and (ii) the neutrality principle is respected.

EV charging services: The predominant element is decisive (C 282/22, 2023)

A bundle including access to infrastructure, electricity, assistance, and IT tools was treated as a single supply, classified as a supply of goods (electricity), with the other elements viewed as ancillary/minimal services.

Takeaway: Classification depends on identifying the core economic feature in a single complex supply.

Cases to watch

Tour Operator Margin Scheme (TOMS) and ancillary supplies (“Voyages-café”, C 565/24, AG Opinion, November 2025)

The case concerns below-cost excursions where profits arise from goods sold during the trip. The Advocate General took the view that in such commercial models, the travel services and the sales of goods remain distinct transactions and that TOMS rules should not apply to the travel services as they would create distortions.

Potential implication: Clarification of the scope of TOMS.

Sale and management of receivables (T 184/25, AG Opinion, February 2026)

The case addresses securitization structures where a lender sells receivables to a purchaser and continues to provide credit management services to the purchaser of the receivables.

The Advocate General took the view that:

• The VAT exemption for credit management services provided by the lender should not apply where the original lender has sold the receivables and then continues to provide credit management services to the purchaser – a strict interpretation of the personal scope of the exemption.
• Credit management services are not ancillary to the sale of the receivables (which could be exempt from VAT), as they serve a different purpose.

Potential implication: Restrictive application of composite analysis to expand exemptions.

Practical implications for businesses operating in Europe

The recent case law confirms that composite treatment remains the exception rather than the rule, and that bundling will not, by itself, justify extending favorable VAT treatment across all elements of a transaction.

Businesses operating in Europe should revisit the VAT treatment of bundled offerings, particularly where a reduced rate or exemption is applied to a package involving multiple elements, including:

• Bundled product or service offerings, particularly in the telecoms sector;
• Promotional incentives (free goods or services);
• Financial services structures; and
• “All-inclusive” pricing models.

It is important to note that local practice remains important, particularly in jurisdictions such as France and Italy, which may take a particularly strict approach to bundled product or service offerings.