- “Hence, we need to have an exemption there that at least this kind of shifting of revenues from one country to another does not take place. And to come back on the. And that's my final comment here on VAT. The VAT is there as a tool to help the defence policy. I mean, the defence policy is not made in the field of taxation. The defence policy is made by the colleagues from defence. They create the market circumstances under which we try to incentivize European governments buying European. And this is once this framework is set. Then we add on top of that at the final stage that there is an exemption if it's applied to the final consumer. And that's where the role of taxation and VAT at least ends. So that's not much more we can do. Again, we cannot differentiate the question which was raised before. If it's the same weapon but it should be the same rate or it should be the same exemption. I mean, if the rate rate can be different from member state to member state, but it should then be a standard rate for everybody or reduced rate for everybody or an exemption. And this is again, the reasons why we chose to support this idea, is that it makes sense to have a VAT exemption here, and it's an exemption with the right of deduction. So its effect is zero rate which is applicable, which means the cost is neutral for the business and it's neutral for the public body actually purchasing the military equipment. Thanks a lot.”
VAT harmonisation · EU competences on defence
- “And then you would need again a VAT exemption. But this is only useful insofar as it's applied to a final consumer which does not have a right to deduction. I mean, if you do research, for example, I mean research in principle you are charged VAT, which you can deduct again as a business. So to that extent VAT. And again this is that's why I started my presentation with this VAT is neutral for the business. It's only a cost element for the final consumer the public body the army buying the the products. So for them it's a cost element. And there we include the exemption. But that's where it ends from our side. I think again, if you want to encourage research and development, I think indeed subsidising would be more efficient as to because for VAT, I mean again this is neutral. You pay it but you deducted again. So it's not a cost element. It's not actually a benefit. Even if you have a reduced rate or a zero rate, it would not help you. Well, it would help you at the Pre-financing, but it's only minor. What is much more interesting, if you actually do get extra money for this. And that's all I can say from my side on this. Thanks.”
VAT harmonisation · EU research funding
- “This exemption is targeted and therefore only applies to defence products procured by and supplied to a member state. It applies only to the purchases done by the public body, since otherwise the funding would need to cover also the VAT. So the VAT exemption ensures that if you buy a defence product, you only pay the net price and also the net price is financed. Otherwise, the price could incur VAT, which means that you would also have to finance the amount of VAT. It does, however, not extend to subcontractors. Why not? Because the subcontractor, as I mentioned from the outset, can deduct the VAT. Vat is not a cost element for the supplier, It's a cost element for the final consumer, for the public body. So it's the public body, the supplier to the public body that will be exempt. That was the second step taken. And then we come to the 2021 state of the Union address by president von der Leyen, who stressed the need for a European Defence Union and mentioned that interoperability and the reduction of dependencies could be improved by considering waiving VAT on the purchase of defence equipment developed and produced in Europe in 2024. The Commission presented a new and first ever European Defence Industrial Strategy, which aims to increase by 2030 the value of Intra-eu defence trade.”
Defence spending · VAT harmonisation · EU competences on defence
- “So it's not a straightforward exemption. It's an exemption which is very well framed. It's an exemption which dates back from even before the VAT directive was installed. So even before 1977, to foster military mobility defined as the capability of member states armed forces to swiftly move troops and equipment across the EU. A similar exemption has recently been put in place mid 2022 for activities under the EU's Common Security and Defence Policy. This was proposed by the Commission in a follow up to its Action Plan on Military Mobility. The aim was to align the VAT treatment of defence efforts undertaken within the EU framework, with those taking place under the NATO umbrella. It would be on equal footing, whether it's in the context of NATO or whether it would be in the context of the European defence efforts. This was the first step taken. Then we come to the next step. So the safe the security action for Europe instruments. It's a new EU financial instrument recently adopted, that will support member states to finance urgent and large scale investments in EU defence. Given the urgency. Safe includes a temporary VAT exemption for the procurement of defence products financed by funding obtained under the Safe instrument. So if the purchase is financed under the Safe instrument, there will be a VAT exemption. This is also stated in the White Paper for European Defence Readiness 2030.”
Defence spending · VAT harmonisation · EU competences on defence
- “Thank you very much, Madam Chair. Dear ladies and gentlemen, honourable members of the Parliament. First of all, I want to thank you for the invitation and the possibility to explain a little bit more in detail how tax matters are seen in the context of the European Defence Union. The focus is on the legislative framework governing VAT exemptions for defence related activities carried out under the EU's Use common security and defense policy. First, I want to take a step back. So to explain VAT is actually consumption tax levied on the supply of goods and services. It is collected by taxable persons with anybody carrying out an economic activity. Only the final consumption is taxed and taxable persons making tax supplies are therefore relieved of the costs of VAT on their purchases. So a taxable person charges VAT. Remits this to the tax authorities and can deduct the VAT. What that was charged to them. So it's neutral for taxable persons. Now when we turn to public bodies which is in the context of European defence, quite important for VAT purposes, public bodies, even if they carry out economic activities, are not required to charge fat. Instead, public bodies including were involved in defense related activities are treated as final consumers. This means that public bodies face a cost of VAT on their purchases if they buy military equipment.”
EU competences on taxation · VAT harmonisation · EU competences on defence
- “Thank you, thank you, and thank you very much for all the questions in the field of VAT. In fact, it's limited what we can do to the extent that on one specific question. Differentiate between the products. That's very tricky. I mean, that's very difficult to do because, I mean, you cannot differentiate based on how good for what it is used, how it is produced. I mean, you could have the same discussion on whether it's green produced or normally produced. I mean, for VAT, the legislation as it stands now does not allow for this. What we actually provide for in the context of defence is if the colleagues were dealing with the European defence policy as such, set up a programme that we ensure that it can be VAT neutral. I think that's what we're doing for the time being, which means that if you purchase these products that at least you don't have to pay in addition to VAT on this. I think that's what the idea is of all the different programs and the exemptions which are there in the VAT directive and the exemption which is directly in the safe regulation. It means that VAT as such will not be a cost for the procurement of these defence products. But that's where it ends. So I mean, if you want to do a policy to, to encourage investment, I think that this again, you would need a program probably.”
VAT harmonisation · EU competences on defence
- “Member States procurement from the European Defence, technological and industrial base and the share of collaborative procurement. At the same time the Commission presented its proposal for European Defence Industry Programme. It is the first operational measure of Edith of the European Defence Industry Strategy. Others will dive into more details of this program to promote joint procurement of military capabilities, Egypt envisages for Member States to set up a structure for European Armament Programme. See up. The CPP is like a consortium. If the CP retains the joint ownership of the military capabilities then that were jointly procured, it will be given access to the VAT waiver provided for in the VAT directive. It will be the same VAT waiver as is applicable for NATO. The same thing. So that will be based on the existing exemptions for recognised international bodies. Hence, for the exemption to be applicable for Serb, it first needs to qualify as an international body, which means that it needs a convention or a headquarters agreement laying down the limits and conditions. And secondly, it needs to be recognised as such by the member state concerned. This is the third step and this concludes my intervention. So thank you very much for your attention and I'm happy to reply. Any questions in the next session. Thank you very much.”
Relations with NATO · Defence spending · EU competences on defence
- “VAT will be charged by the supplier normally for the member state concerned domestically and the budget. This is not that important because it means the public body of the member state will pay VAT, but the supplier who charges the VAT has to remit this to the tax authorities. So in fact, the budget of the state is neutral. However, what you can see is that member States also face costs when this takes place cross-border. So when you have supplies outside the country, then it's no longer neutral. This is, for example, the case where the armed forces of a member state are stationed in another member state. In that case, if VAT was charged, it would have been charged in one country and not an deduct not able to be deducted, so it would be charged in another country. This with this in mind, in fact, then we come to the NATO treaty, which requires its members to relieve of VAT the armed forces when stationed abroad as part of NATO activities. That is in turn reflected in the VAT directive, which stipulates that member state must exempt the supply of goods and services made to the armed forces of other NATO member states. While these armed forces are stationed in another member state, which is also a member of NATO, and only when they take part in the common defence.”
Relations with NATO · VAT harmonisation
- “Thank you. Uh, a couple of comments. First of all, I totally subscribed what the previous speaker online said. Uh, with, uh, the the risk of price increase, I think the risk of price increase. And that's something we also see in taxation. If you give a subsidy that in principle also triggers the risk of the supplier increasing the price. I mean, that's something which is there and sufficient market control. And also from the the government's actually buying the weapons is necessary. I mean, in this context to, to avoid that, that problem. There were some specific questions. On what other countries outside the EU, whether they are doing the same thing. The VAT exemption, which exempts within the EU on this thing that we don't know honestly. I mean, it's not something which other jurisdictions are actually very keen on communicating. So I don't think we have any news on whether, for example, the UK would have a similar system in place if there would be joint procurement within the UK with EU member states participating. So I don't know whether this exists. I think the colleagues from DG know a little bit more, but at least from taxation, I have no idea on this on the rules of the game in unanimity. Yeah, VAT is with unanimity. That's quite tricky with saying there was an exception. So this was with qualified majority, but this was based on real exceptional circumstances. So it's actually still a very exceptional case. But this is not to be repeated because also from the taxation side, a lot of the member states had some questions on this thing.”
State Aid · VAT harmonisation · EU competences on taxation
- “It was justified because the legal base was there in the exceptional circumstances for other sectors. Yeah, absolutely. I mean, working in the VAT field, the only thing we always get lobbied for is zero rate for everything. I mean, that's what everybody wants. So the risk is there indeed that you say, okay, you give an exemption out to the industry sector, the defence industry. Why not give an exemption to the green industry, for example? Something could be very simple. Now, something we shouldn't forget is that VAT is a revenue raiser. So that's the purpose. We don't do policy as such. We make sure that member states get the money in order to do what they have to do, and for the citizens and for for everybody. So to that extent, I mean, these kind of exemptions should be limited from from our side because it it deteriorates the financial position of member states. Now, the reason why you have, for example, in a VAT exemption is more also of another nature. It means that these are purchases which are financed through EU funds, and we should make sure that, in fact, the EU funds are not used to subsidise those member states where you procure from. If you buy something, let's say a weapon in Germany, a vat would be charged and it would be paid through the safe fund. This would have as an impact that actually the supplier would charge VAT, German VAT, which is remitted to the German authorities, and it's partly paid by EU funds, which means all other member states contribute to this. That's not the idea of this thing.”
Defence spending · VAT harmonisation