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To strengthen Europe’s defense capabilities, the European Commission has introduced a new €150 billion defense fund, known as the Security Action for Europe (SAFE) bill. One of the key features of the proposal is a temporary VAT exemption on defense products, including imports and intra-Union transactions, aimed at incentivizing production and procurement of military goods.
The SAFE bill will provide a €150 billion loan to enhance Europe’s military readiness amid ongoing geopolitical tensions, including the war in Ukraine and concerns about the United States’ ongoing commitment to European defense. The proposal, released this Wednesday, must go through the legislative process and receive approval from both EU member states and the European Parliament before implementation.
The VAT exemption under the SAFE bill would apply to supplies of defense products, making them more cost-effective for EU member states. Currently, similar exemptions exist under the 2006 VAT Directive and the 2008 excise Directive, which apply to supplies to armed forces of NATO countries participating in common defense efforts outside their own states. These earlier provisions were introduced during a time when there was no common European Union defense policy.
The proposed VAT exemption aims to reduce the costs of military production and procurement, allowing European countries to better enhance their defense capabilities in response to evolving threats.
This significant financial commitment underscores the EU’s intent to bolster its defense sector and ensure that member states can maintain military readiness in an increasingly uncertain global environment.
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