On Wednesday 24 April, the European Commission adopted a proposal to exempt supplies to armed forces from Value Added Tax (VAT) and excise duties when these forces are deployed outside their own Member State and take part in a European defence effort.
While NATO's defence effort has been covered by the VAT Directive since 1977 and by the Excise Directive since 1993, no exemption applies to supplies and services linked to the common defence effort within the European Union, explained the Commission.
In specific terms, it proposes to amend the two Directives that state that armed forces deployed outside of their own Member State would not pay VAT or excise duties to other Member States when they participate in a defence activity under the Common Security and Defence Policy (CSDP).
“By aligning the indirect tax treatment of both defence efforts, the initiative acknowledges the growing importance of the CSDP and military mobility”, the Commission said in a statement.
The CSDP activities concerned are military missions and operations, battle group activities, mutual assistance, permanent structured cooperation (PESCO) projects and the activities of the European Defence Agency (EDA).
The exemptions cover the supply of goods such as food, fuel, special liquids, pharmaceuticals, water and gas, but also the supply of services such as catering, communication, repairs and transport.
The Commission estimates that this proposal could result in a possible loss of VAT revenue for all Member States of approximately EUR 80 million (assuming an average VAT rate of 18%). With regard to excise duties, it believes that energy products and electricity should be the main category of exempt products and they estimate that around 10% of these costs could be exempt from excise duty in the future.
The proposal can be viewed at: https://bit.ly/2ZxsuVZ. (Original version in French by Marion Fontana)