Defense and taxation: MEPs investigate tax implications on rolling out the European Defense Union

On Wednesday MEPs of the tax matters committee and the defence committee met experts to discuss the tax elements of the European Defense Union.

The hearing focused on the legislative framework governing VAT exemptions for defence-related activities carried out under the EU’s Common Security and Defence Policy (CSDP) and thge related 65% European content requirement. Through one of the invited experts it also delved into the rationale for market protectionism in the defense sector.

The discussion also explored the cooperation mechanisms between the European Commission, national Ministries of Finance, and Ministries of Defence in ensuring consistent and compliant implementation of the VAT exemptions. The panel also addressed the operational and administrative challenges encountered in the field.

During the questions and answers MEPs sought more details on how the VAT tax regime and 65% content rule would work and how to make sure that it would not be taxpayers bearing the brunt of increased military expenditure. "Getting taxpayers to pay for defense is not the state of the art. It should be paid for by monetary policy and debt", one of the experts said.

The insights gathered will contribute to the broader debate on strengthening the fiscal framework underpinning European defence initiatives, including the European Defence Industry Programme (EDIP) and upcoming measures under the ReArm Europe Plan and Readiness 2030 strategy.