Proposal for a COUNCIL DIRECTIVE amending Directive 2006/112/EC on the common system of value added tax and Directive 2008/118/EC concerning the general arrangements for excise duty as regards defence effort within the Union framework
Date: 2019-04-24
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: EU Member State, EU-NATO cooperation, Eurogroup (NATO), European defence policy, VAT, armed forces, excise duty, goods and services, import (EU), tax exemption

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   EUROPEAN COMMISSION  Brussels, 24.4.2019  COM(2019) 192 final 2019/0096 (CNS)  Proposal for a COUNCIL DIRECTIVE amending Directive 2006/112/EC on the common system of value added tax and Directive 2008/118/EC concerning the general arrangements for excise duty as regards defence effort within the Union framework  
 
 
EXPLANATORY MEMORANDUM 

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CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

Value added tax (VAT) is a general consumption tax borne ultimately by the final consumer 
but  collected  by  businesses  supplying  goods  or  services.  The  scope  of  VAT,  as  set  out  in 
Article 2 of the VAT Directive1, is very broad, covering any supply of goods and services for 
consideration by a taxable person within the territory of a Member State and any importation 
of goods into the European Union (EU). One of the aims of the VAT Directive was to draw 
up  a  common  list  of  VAT  exemptions  so  that  EU  own  resources  could  be  collected  in  a 
uniform  manner  in  all  Member  States2.  That  is  why  the  exemption  of  any  transaction  from 
VAT requires a specific provision in the VAT Directive. 

The  VAT  Directive  does  not  provide  for  any  general  exemption  for  the  supply  of  goods  or 
services  for  security  and  defence  purposes.  In  principle,  goods  or  services  supplied  to,  or 
goods imported by, armed forces will therefore carry VAT3. The cost of VAT is reflected in 
an increase in the revenues that the tax generates for the state treasury (as public bodies, the 
military  forces  are  unable  to  recuperate  such  VAT),  which  in  turn  feed  into  the  budget  that 
finances activities such as national defence. 

The  Directive  does  provide  for  an  exemption  for  supplies  to  the  armed  forces  of  any  state 
party to the North Atlantic Treaty that are taking part in a common defence effort outside their 
own state. This exemption was established to address situations in which the circle of revenue 
and  expenditure  flow  is  broken,  because  VAT  on  such  supplies  would  normally  constitute 
revenue for the state in which the armed forces are located, rather than their own. 
The Excise Directive4 provides for a similar exemption from excise duty5 for movements of 
excise goods to the armed forces of any North Atlantic Treaty Organisation (NATO) member. 
While  NATO  defence  effort  has  been  covered  by  the  VAT  Directive  since  19776  and  the 
Excise Directive since 1993, neither of the exemptions covers supplies linked to the common 
defence effort within the Union framework, because there is as yet no common Union defence 
policy. However, the common security and defence policy (CSDP), which was established as 

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Council Directive 2006/112/EC on the common system of value added tax (OJ L 347, 11.12.2006, p. 1). 
See recital 35 of the Directive. 
Article 148(b)  of  the  Directive  allows  some  scope  for  exemption  where  goods  are  supplied  for  the 
fuelling  and  provisioning  of  fighting  ships  (CN  code  8906 10 00)  that  are  leaving  their  territory  and 
bound for ports or anchorages outside the Member State in question. Points (11) and (12) in Part B of 
Annex X  to  the  Directive  allow  for  the  exemption  of  the  supply,  modification,  repair,  maintenance, 
chartering and hiring of aircraft used by state institutions, including equipment incorporated or used in 
such aircraft, and the supply, modification, repair, maintenance chartering and hiring of fighting ships. 
Council  Directive  2008/118/EC  concerning  the  general  arrangements  for  excise  duty  and  repealing 
Directive 92/12/EEC (OJ L 9, 14.1.2009, p. 12). 
Excise duties governed by EU law are applied on alcoholic beverages, manufactured tobacco products 
and energy products (motor fuels and heating fuels, such as petrol and gasoline, electricity, natural gas, 
coal and coke). The structure of the taxes and minimum rates are harmonised at EU level. 
Introduction of an exemption under diplomatic and consular arrangements for supplies to NATO forces 
taking part in the common defence effort  subject to conditions and limitations laid down by Member 
States, which could also be implemented by means of a refund of VAT. 

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the European security and defence policy (ESDP) in  20007, is  a key instrument for external 
action and includes the progressive framing of a common Union defence policy8. 

The  Lisbon  Treaty,  which  came  into  force  in  December  2009,  was  a  milestone  in  the 
development of the CSDP. The Treaty on European Union (TEU), as amended by the Lisbon 
Treaty,  includes  a  mutual  assistance  clause9  and  allowed  Member  States  to  strengthen  their 
cooperation  in  military  matters  through  ‘permanent  structured  cooperation’  (PESCO)10.  The 
Lisbon Treaty also  established the European External  Action Service (EEAS), which assists 
the  High  Representative  of  the  Union  for  Foreign  Affairs  and  Security  Policy  in  all  her 
responsibilities, including the CSDP. The fact that the High Representative is also one of the 
Vice-Presidents of the Commission facilitates the bringing together of all necessary EU assets 
and the application of a comprehensive approach to EU crisis management. 
The EU Military Committee (EUMC), which was set  up in  200111, is  the  Council’s highest 
military  body.  It  directs  all  military  activities  within  the  EU  framework  and  advises  on  the 
planning  and  execution  of  military  missions  and  operations  under  the  CSDP,  and  on  the 
development of military capabilities.  
Also  established  in  200112  and  working  under  the  military  direction  of  the  EUMC,  the 
European  Union  Military  Staff  (EUMS)  is  the  source  of  the  EU’s  military  expertise13.  It 
provides  early  warning,  situation  assessment  and  strategic  planning  for  missions  and  tasks 
referred to in Articles 42(1) and 43(1) TEU. It also contributes to the elaboration, assessment 
and review of the capability goals. 

In  June  2016,  the  global  strategy  for  the  European  Union’s  foreign  and  security  policy 
(EUGS)14  laid  the  ground  for  developing  CSDP  further  towards  three  core  priorities: 
responding to external conflicts and crises, building the capabilities of partners and protecting 

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The  conditions  under  which  military  units  could  be  deployed  were  agreed  by  the  Western  European 
Union (WEU) Council in 1992 and the ‘Petersberg Tasks’ were included in the questions referred to in 
the 1997 Treaty of Amsterdam. WEU tasks and institutions were subsequently transferred gradually to 
the  EU,  in  particular  with  the  creation  of  the  European  Defence  Agency  (EDA)  in  2004  by  Council 
Joint Action 2004/551/CFSP (OJ L 245, 17.7.2004, p. 17). This process was completed in 2009 when a 
mutual  assistance  clause  between  the  EU  Member  States,  similar  to  the  WEU’s  mutual  assistance 
clause, entered into force with the Treaty of Lisbon. The WEU was finally closed in 2011. 
Article 42(2) TEU  provides  that  ‘[t]he  common  security  and  defence  policy  shall  include  the 
progressive framing of a common Union defence policy. This will lead to a common defence, when the 
European  Council,  acting  unanimously,  so  decides.  It  shall  in  that  case  recommend  to  the  Member 
States the adoption of such a decision in accordance with their respective constitutional requirements’. 
In  his  2017  ‘state  of  the  Union’  address  ,  the  President  of  the  Commission  referred  to  the  need  for  a 
fully-fledged European Defence Union by 2025: 
https://ec.europa.eu/commission/priorities/state-union-speeches/state-union-2017_en  
Article 42(7) TEU. 
Articles 42(6) and 46 TEU. 
Council  Decision  2001/79/CFSP  setting  up  the  Military  Committee  of  the  European  Union  (OJ L 27, 
30.1.2001, p. 4).  
Council  Decision  2001/80/CFSP  on  the  establishment  of  the  Military  Staff  of  the  European  Union 
(OJ L 27, 30.1.2001, p. 7). Recital 6 of Council Decision (EU) 2017/971 (OJ L 146, 9.6.2017, p. 133) 
states that ‘the Council approved the consolidated Terms of Reference of the EUMS [which] replace the 
Terms of Reference of the EUMS annexed to Council Decision 2001/80/CFSP on the establishment of 
the military staff of the European Union, which are no longer applicable’. 
In 2004, the EUMC agreed on a battlegroup concept developed by the EUMS and a single battlegroup 
concept document was adopted in October 2006. 
Shared vision, common action: a stronger Europe – a global strategy for the European Union’s foreign 
and security policy. 

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the  Union  and  its  citizens.  In  December  201715,  the  European  Council  invited  the  High 
Representative,  the  Commission  and  the  Member  States  to  bring  forward  work  on  military 
mobility, both under PESCO and in the context of EU-NATO cooperation. 

In March 2018, as  a follow-up to  their November 2017 Joint Communication on improving 
military mobility in the EU16, the Commission and the High Representative presented a Joint 
Communication on the action plan on military mobility17. The action plan recognises the need 
for equal treatment of defence efforts with a view to reducing administrative burden and thus 
delays  and  costs  in  military  mobility,  and  providing  Member  States  with  an  incentive  to 
cooperate18. It requires the Commission to assess the feasibility of aligning the VAT treatment 
of defence efforts in the EU framework and under the NATO umbrella. 

On 19 November 2018, the Council concluded on Security and Defence in the context of the 
EUGS19.  The  Council  welcomed  the  substantive  progress  made  in  the  area  of  security  and 
defence during the previous two years and stressed the importance of keeping the momentum 
through the continued engagement of the Member States and EU institutions. In particular, the 
Council  welcomed  the  progress  in  the  implementation  of  PESCO  and  the  ongoing 
implementation  of  efforts  to  improve  the  mobility  of  military  personnel,  materiel  and 
equipment for routine activities and during crisis and conflict, within and beyond the EU. 

In line with the action plan and the Council conclusions, the objective of this proposal is to 
align  the  VAT  treatment  of  defence  efforts  in  the  EU  and  NATO  frameworks  as  far  as  is 
feasible.  The  proposal  has  to  acknowledge  that,  while  there  is  a  collective  defence  effort 
under the North Atlantic Treaty, no common Union defence policy exists as yet. 

The arrangements for exemptions from excise duties, as provided for in the Excise Directive, 
should be aligned in a similar way. 

Consistency with existing policy provisions in the policy area 

• 
The  proposal  complements  the  2016  VAT  action  plan20  setting  out  ways  to  modernise  the 
VAT system so as to make it simpler, more fraud-proof and business-friendly.  

Consistency with Chapter 8 of Title IX of the VAT Directive (exemptions relating to certain 
transactions  treated  as  exports),  in  particular  with  Article 151(1)(c)  (and  (d))  of  the  VAT 
Directive and its interpretation by the Court of Justice of the European Union (CJEU)21, and 
with Article 12(1)(c) of the Excise Directive, is  achieved by excluding from the exemptions 
supplies of goods and services for the armed forces of the Member State in which those goods 
or services are supplied.  

Furthermore, the limitation  of the scope of the proposal  to  situations, in  which the circle of 
revenue and expenditure flow is broken, is consistent with Article 151(1)(aa) (and (b)) of the 
VAT Directive. Domestic supplies can only be exempted, if supplied to the EU, bodies set up 

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Fourth  progress  report  towards  an  effective  and  genuine  security  union,  Communication  from  the 
Commission to the European Parliament, the European Council and the Council (COM(2017) 41 final). 
Improving Military Mobility in the European Union, Joint Communication to the European Parliament 
and the Council (JOIN(2017) 41 final) 
Action  plan  on  military  mobility,  Joint  Communication  to  the  European  Parliament  and  the  Council 
(JOIN(2018) 5 final). 
Idem, p. 7. 
https://www.consilium.europa.eu/media/37030/st13978-en18.pdf 
Towards  a  single  EU  VAT  area  —  time  to  decide,  Communication  from  the  Commission  to  the 
European Parliament, the Council and the European Economic and Social Committee on an action plan 
on VAT (COM(2016) 148 final). 
Case C-225/11 Able UK. 

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by the EU or international bodies. Similar to NATO as a recognised international body and to 
EDA as an EU body covered by the Protocol on Privileges and Immunities (PPI) and meeting 
limits  and  conditions  laid  down  in  the  PPI,  operational  headquarters  and  other  entities 
established for defence purposes under the CSDP could benefit from an exemption under the 
conditions and limitations of the host Member State, if they fulfil the requirements laid down 
in Article 151(1)(aa) (or (b)) of the VAT Directive. The proposal does not introduce a means 
of  circumventing  these  requirements  or  to  deprive  the  host  Member  State  from  defining 
conditions and limitations22. 

Finally,  consistent  with  the  wording  in  Article 151(1)(c)  (and  (d))  of  the  VAT  Directive, 
supplies to the armed forces and the accompanying civilian staff can only be exempted, when 
such forces take part in a defence effort carried out for the implementation of a Union activity 
under  the  CSDP.  Therefore,  the  exemptions  do  not  cover  the  deployment  of  armed  forces 
solely for security purposes, for humanitarian and rescue tasks or when evoking the solidarity 
clause  laid  down  in  Article 222  of  the  Treaty  on  the  Functioning  of  the  European  Union, 
which  has  no  defence  implications.  Taking  into  account  that  the  VAT  Directive  does  not 
allow for any exemption of supplies to public bodies other than armed forces, the limitation of 
the scope to defence effort and therefore to activities that are generally exclusively performed 
by  armed  forces  is  consistent  with  the  principle  of  fiscal  neutrality  inherent  in  the  common 
system of VAT and Article 20 of the Charter of Fundamental Rights of the European Union. 
EU  law  would  generally  preclude  a  different  VAT  treatment  for  armed  forces  compared  to 
other  government  bodies,  e.g.  police  forces,  or  non-profit  organisations  when  carrying  out 
similar tasks.  

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Consistency with other Union policies 

The  proposal  is  consistent  with  the  EUGS  and  the  implementation  plan  on  security  and 
defence23,  which  sets  out  proposals  to  implement  the  EUGS  in  the  area  of  security  and 
defence. 

It implements the Commission’s commitment in the action plan on military mobility to assess 
the  feasibility  of  aligning  the  VAT  treatment  of  defence  efforts  in  the  EU  framework  and 
under the NATO umbrella. 
The proposal  is  also  consistent with  the European defence action plan24, which includes  the 
launching  of  a  European  Defence  Fund25,  and  the  Athena  mechanism26,  which  (pursuant  to 
Article 41(2) TEU)  handles  the  financing  of  common  costs  of  EU  military  missions  and 
operations in the framework of the CSDP. 

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Member States can always compensate for the cost of VAT outside the VAT system provided that the 
mechanism used complies with the basic principles of the internal market and EU law. 
https://eeas.europa.eu/sites/eeas/files/eugs_implementation_plan_st14392.en16_0.pdf 
European defence action plan, Communication from the Commission to the European Parliament, the 
Council,  the  European  Economic  and  Social  Committee  and  the  Committee  of  the  Regions 
(COM(2016) 950 final). 
Proposal  for  a  Regulation  of  the  European  Parliament  and  of  the  Council  establishing  the  European 
Defence  Fund  (COM(2018)  476  final).  The  Fund  will  provide  EUR 4.1 billion  to  directly  finance 
competitive  and  collaborative  research  projects,  in  particular  through  grants,  and  EUR 8.9 billion  to 
complement  Member  States’  investment  by  co-financing  the  costs  for  prototype  development,  the 
ensuing certification and testing requirements. 
Council  Decision  (CFSP)  2015/528  establishing  a  mechanism  to  administer  the  financing  of  the 
common  costs  of  European  Union  operations  having  military  or  defence  implications  (Athena)  and 
repealing Decision 2011/871/CFSP (OJ L 84, 28.3.2015, p. 39). 

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2. 

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LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

The proposed Directive will amend the VAT and Excise Directives on the basis of Article 113 
of  the  Treaty  on  the  Functioning  of  the  European  Union.  That  provision  provides  for  the 
Council,  acting  unanimously  in  accordance  with  a  special  legislative  procedure  and  after 
consulting  the  European  Parliament  and  the  European  Economic  and  Social  Committee,  to 
adopt provisions to harmonise Member States’ rules in the area of indirect taxation. 

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Subsidiarity (for non-exclusive competence) 

The lack of alignment in the VAT and excise-duty treatment of defence efforts in the EU and 
under NATO frameworks stems from the current VAT and Excise Directives. Member States 
could  not  address  it  by  acting  alone.  Alignment  requires  a  proposal  by  the  Commission  to 
amend both Directives. 

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Proportionality 

The proposal is consistent with the principle of proportionality, as it does not go beyond what 
is  necessary  to  meet  the  objectives  of  the  Treaties  linked  to  the  smooth  functioning  of  the 
single market and the progressive framing of a common defence policy under the CSDP. The 
current  exemptions  for  NATO  defence  activities,  which  are  already  framed  and  limited  in 
scope, will not be extended. With this proposal, the scope of exemptions will be similar for 
Union  and  NATO  defence  efforts.  While  any  exemption  has  an  impact  on  tax  revenue, 
extending the scope of these exemptions to EU defence effort will have a minimal effect on 
the tax base. 

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Choice of instrument 

A Directive is proposed in view of amending the VAT and Excise Directives. 

3. 

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RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EVALUATIONS, 

EX POST 

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STAKEHOLDER 

Ex post evaluations/fitness checks of existing legislation 

Currently,  there  is  no  legislation  relating  to  the  VAT  or  excise-duty  treatment  of  supplies 
under the EU defence effort. There is no available data regarding the relevant supplies under 
the NATO defence effort. 

Stakeholder consultations 

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Member States were consulted in the group on the future of VAT27 and broadly confirmed the 
need to act at EU level by introducing a VAT exemption for supplies linked to defence effort 
in  the  EU  framework  similar  to  that  for  supplies  linked  to  NATO  defence  effort  under 
Article 151(1)(c)  and  (d)  of  the  VAT  Directive.  The  current  proposal  implements  this 
objective and maintains consistency between VAT and excise duty. 

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Collection and use of expertise 

The expertise collected through consultation with representatives of the EEAS, the EDA and 
defence experts supporting the members of the group on the future of VAT was sufficient for 
the present proposal. 

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Informal  group  of  representatives  of  national  tax  administrations,  providing  the  Commission  with  a 
forum for consulting VAT experts from Member States on pre-legislative initiatives. 

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Impact analysis 

This proposal is not accompanied by an impact assessment, as the objective per se dictates the 
policy option. Furthermore, given the limited scope of the proposed exemption, there are no 
social, economic or environmental impacts. 

This  section  analyses  the  impact  of  the  measure  on  VAT  revenues  in  comparison  to  a  ‘do 
nothing’ baseline scenario. As detailed data on military expenses is either confidential or not 
available, the analysis relies on rough estimates. 

CSDP activities that would be covered by the exemptions are as follows: 

(1) 

military missions and operations 

Under the CSDP, the EU has since 2003 conducted military missions and operations 
pursuant  to  the  (current)  legal  basis  of  Articles 42(4)  and  43(2) TEU.  There  are 
currently  six  ongoing  military  missions/operations  in  the  neighbourhood  of  the 
Union and Africa28. CSDP missions  and operations can take place only outside the 
Union,  but  the  exemptions  would  cover  activities  within  the  Union  as  part  of  such 
(re)deployment  (deployment  in  operational  headquarters,  transits,  movements, 
pre-deployments, exercises, meetings, etc.); 

battlegroups 
With  regard  to  EU  battlegroups29  based  on  Article 42(1) TEU,  the  extension  of  the 
exemptions  will,  so  far,  have  no  impact  on  VAT  or  excise-duty  revenues,  because 
battlegroups have not been deployed to date. In the event of (re)deployment (which 
would be outside the Union)30, the exemptions would cover related CSDP activities 
in the Union; 

(2) 

(3) 

mutual assistance 

It  is  not  possible  to  predict  the  impact  on  VAT  and  excise-duty  revenues  of 
exemptions  for  mutual  assistance  pursuant  to  Article 42(7) TEU  in  the  event  of  a 
Member  State  being  a  victim  of  armed  aggression  on  its  territory.  Following  the 
terrorist  attacks  in  Paris  on  13 November  2015,  France  requested  such  aid  and 
assistance  from  the  other  Member  States.  In  parallel  with  bilateral  contributions, 
some  Member  States  decided  to  increase  their  participation  in  the  CSDP  military 
mission EUTM Mali; 

PESCO 
It can be assumed that the PESCO31 established recently pursuant to Article 46 TEU, 
in which 25 Member States participate32, will lead to a loss of VAT and excise-duty 
revenue. PESCO allows willing and capable Member States to deepen their defence 

https://eeas.europa.eu/topics/military-and-civilian-missions-and-operations/430/military-and-civilian-
missions-and-operations_en 
See  EU  battlegroup  concept,  Council  document  11624/14  (7 July  2014).  These  are  multinational 
military units, usually composed of 1 500 personnel each, which form an integral part of the EU’s rapid 
reaction capacity to respond to emerging crises and conflicts around the world. 
On 22 June 2017, EU leaders agreed that the cost of any deployment of battlegroups would be borne as 
a common cost; this is aimed at strengthening the EU’s rapid response capabilities. 
Council  Decision  (CFSP)  2017/2315  establishing  permanent  structured  cooperation  (PESCO)  and 
determining the list of participating Member States (OJ L 331, 14.12.2017, p. 57). 
Austria,  Belgium,  Bulgaria,  Czech  Republic,  Croatia,  Cyprus,  Estonia,  Finland,  France,  Germany, 
Greece,  Hungary,  Italy,  Ireland,  Latvia,  Lithuania,  Luxembourg,  the  Netherlands,  Poland,  Portugal, 
Romania, Slovenia, Slovakia, Spain and Sweden. 

(4) 

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cooperation, plan jointly, develop  and invest in  cooperative capability projects,  and 
enhance the operational readiness and contribution of their armed forces33; and 

(5) 

EDA activities 

Currently, the only loss of revenue in connection with EDA activities would relate to 
those  referred  to  in  Articles 42(3)  and  45 TEU34,  which  include  regular  education 
and operational training35. In order to qualify for exemption, projects would have to 
involve  the  deployment  of  the  armed  forces  of  one  Member  State  to  another.  The 
exemption  would  not  be  available  to  the  armed  forces  of  other  countries  that  have 
signed  administrative  arrangements  with  the  EDA36.  However,  non-EU  NATO 
members can benefit from the existing exemptions. 

Defence  spending  data  for  EDA  members  is  published  on  the  EDA  ‘defence  data  portal’. 
Expenditure  for  outsourced  operations  and  maintenance  for  all  Member  States  (except 
Denmark)  amounted  to  EUR 5.3 billion  in  2014 (most  recent  available  data).  However,  this 
data does not distinguish between: 

– 

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domestic supplies not covered by the exemption; and  

supplies in another Member State, which would in general relate to activities in the 
CSDP or NATO frameworks.  

It  is  reasonable  to  assume  that  most  of  the  amount  (at  least  80%)  relates  to  the  former  and 
only a small part (maximum 20%) relates to  the latter.  In addition,  around half of the latter 
would normally be supplies of accommodation for the deployed armed forces, which would 
normally be VAT-exempt under Article 135(1)(l) of the VAT Directive.  

It can therefore be assumed that a maximum of 10 % of the overall amount (EUR 530 million) 
could  either  become  VAT-exempt  under  the  new  rules  or  would  already  be  covered  by  the 
exemption  for  NATO  activities.  This  concerns  supplies  of  goods  (e.g.  food,  fuel,  special 
liquids,  equipment,  pharmaceutical  provisions,  electricity,  water,  gas)  and  services 
(e.g. catering,  communication,  maintenance,  repair,  transportation,  road  charges).  While  the 
estimate does not take into account any future rise in military spending by Member States as a 
result of the increasing importance of the CSDP, it includes the costs of the existing NATO 
exemption. 

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The  initial  list  of  17  projects  to  be  developed  under  PESCO,  as  adopted  by  Council  Decision 
(CFSP) 2018/340  (OJ L 65,  8.3.2018,  p. 24),  covers  domains  such  as  the  European  Union  Training 
Mission  Competence  Centre  (EU  TMCC)  and  the  Strategic  Command  and  Control  (C2)  System  for 
CSDP Missions and Operations. The second list of 17 additional projects, adopted by Council Decision 
(CFSP)  2018/1797  of  19  November  2018  amending  and  updating  Decision  (CFSP)  2018/340 
(OJ L 294, 21.11.2018, p. 18), covers domains  such as European  Attack Helicopters TIGER Mark III 
and the European Military Space Surveillance Awareness Network (EU-SSA-N). 
Currently, all Member States except Denmark participate in the EDA. 
Specific examples of EDA activities that could benefit from an extension of the exemptions are: 

  helicopter availability (over 13  000 personnel have taken part in eight live exercises, e.g. Italy 

hosted a training event with participants from seven different countries in June 2015); 
fixed-wing  training  (e.g.  European  air-to-air  refuelling  training  hosted  by  the  Netherlands  in 
2014 and 2015); and  
countering improvised explosive devices (several training courses have already taken place). 

 

 

The  EDA  has  signed  administrative  arrangements  with  Norway  (2006),  Switzerland  (2012),  Serbia 
(2013) and Ukraine (2015) whereby they can participate in its projects and programmes. 

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Consequently,  it  is  prudent  to  use  the  estimate  of  EUR 530 million  as  an  indicator  for 
outsourced activities, which could then translate into a possible loss of VAT revenue for all 
Member States of around EUR 80 million (assuming an average VAT rate of 18%37). 

With  regard  to  excise  duties,  energy  products  (e.g.  fuel)  and  electricity  should  be  the  main 
product category subject to exemption. As with VAT, it can be assumed that around 10% of 
such  costs  would  become  exempt  from  excise  duty  in  the  future.  However,  there  is  no 
available data to provide a basis for quantifying the impact. 

• 

Regulatory fitness and simplification 

The  proposal  is  not  linked  to  REFIT  and  has  no  particular  impact  on  micro-enterprises  or 
SMEs. 

4. 

BUDGETARY IMPLICATIONS 

By  extending  the  scope  of  VAT  exemptions,  the  proposal  could  reduce  VAT  revenue 
collected  by  Member  States  and  therefore  the  VAT  own  resource.  While  there  will  be  no 
negative implications for the EU budget, as the own resource based on gross national income 
(GNI)  compensates  for  any  expenditure  not  covered  by  traditional  own  resources  and  the 
VAT own resource, the non-collected VAT own resources from certain Member States would 
have to be compensated by all Member States through the GNI own resource.  

Excise duty is not an own resource. Therefore, there are no implications for the Union budget. 

5. 

• 

OTHER ELEMENTS 

Implementation plans and monitoring, evaluation and reporting arrangements 

The  Commission  will  monitor  implementation  of  the  proposed  measures  as  part  of  its 
responsibilities for ensuring the correct application of EU VAT and excise legislation. 

• 

Explanation of the specific provisions of the proposal 

Article 1 of the proposal amends the VAT Directive as follows: 

– 

a paragraph is added to Article 22, mirroring the existing paragraph referring to the 
armed forces of a NATO state38 

The  new  provision  ensures  that  the  use  of  goods  by  Member  States’  armed  forces 
taking  part  in  the  defence  effort  carried  out  for  the  implementation  of  a  Union 
activity under the CSDP will be treated as an intra-EU acquisition for consideration 
where those goods, which have not been purchased under the local VAT rules of the 
Member State in which the forces are stationed, are brought back and used by those 
forces for their needs or for their accompanying civilian staff in their own Member 

37 

38 

The estimate is derived by calculating the median of the estimated weighted average VAT rate applied 
in each Member State. 
Under  the  current  Article 22,  the  final  use  of  goods  by  NATO  forces  is  to  be  treated  as  an  intra-EU 
acquisition of goods for consideration, provided that: 

  NATO forces use the goods for their needs or for their accompanying civilian staff; 
 

the  goods  were  not  purchased  under  the  local  VAT  rules  of  the  Member  State  in  which  the 
forces are stationed; and  
the importation of such goods would not have been eligible for exemption in the normal way 
for such transactions under Article 143(1)(h). 

 

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– 

– 

State.  This  provision  applies  where  importation  of  the  goods  would  not  have  been 
eligible for exemption under Article 143(1)(ga); 

point (ga)  is  added  to  Article 143(1),  mirroring  the  exemption  in  point (h)  for  the 
importation of goods by NATO members39 

The  new  provision  introduces  a  VAT  exemption  for  the  importation  of  goods  into 
Member States by the armed forces of other Member States taking part in a defence 
effort carried out for the implementation of a Union activity under the CSDP, where 
the  goods  are  for  the  use  of  those  forces  or  accompanying  civilian  staff  or  for 
supplying their messes or canteens; and 

points (ba)  and  (bb)  are  added  to  Article 151(1),  mirroring  the  exemption  in 
points (c) and (d) for the NATO defence effort40 

The  exemption  in  Article 151(1)(ba)  covers  supplies  of  goods  or  services  within  a 
Member State, intended for use by the armed forces of other Member States or the 
accompanying  civilian  staff,  or  for  supplying  their  messes  or  canteens,  where  such 
forces  are  taking  part  in  a  defence  effort  carried  out  for  the  implementation  of  a 
Union activity under the CSDP. 

The  exemption  in  Article 151(1)(bb)  relates  to  supplies  of  goods  or  services  to 
another  Member  State,  intended  for  the  armed  forces  of  any  Member  State,  other 
than  the  Member  State  of  destination,  for  the  use  of  those  forces  or  accompanying 
civilian staff, or for supplying their messes or canteens, where such forces are taking 
part in a defence effort carried out for the implementation of a Union activity under 
the CSDP. 

Like the exemption for NATO defence effort, the exemption therefore does not cover 
domestic  supplies  to  Member  States’  own  military  forces  of  goods  such  as  spare 
parts for military equipment or services such as repair and transport services; and 

Article 2  introduces  an  excise-duty  exemption  for  defence  effort  carried  out  for  the 
implementation of a Union activity under the CSDP  41. The exemption will cover supplies of 

39 

40 

41 

The  current  Article 143(1)(h)  provides  for  a  mandatory  VAT  exemption  for  the  importation  of  goods 
into  EU  Member  States  that  are  also  NATO  members  by  the  armed  forces  of  other  NATO  members 
provided that: 
 

the goods are for the use of the armed forces or accompanying civilian staff, or for supplying 
their messes or canteens; and  
those forces are taking part in the common defence effort. 

 

 
 

The current Article 151(1)(c) and (d) exempt supplies of goods or services to armed NATO forces or 
accompanying civilian staff, or for supplying their messes or canteens, provided that: 
the supply is within or to a Member State that is a party to the NATO Treaty; 
it is intended for the armed forces or accompanying civilian staff, or for supplying their messes 
or canteens, of a NATO member. While the forces can be from a third country, the forces of 
the Member State where the supply takes place cannot benefit from the exemption; and 
those armed forces are taking part in the common defence effort. For the forces to be eligible 
for exemption, their presence must therefore be related to activities linked to the objectives set 
out in the North Atlantic Treaty. If it is just based on a bilateral agreement and the forces are 
not taking part in the common defence effort, no exemption can be granted. 

 

The  exemption  for  supplies  would  apply  no  matter  whether  the  armed  NATO  forces  are  stationed, 
visiting or simply passing through a Member State other than their own. 
The  current  Article 12(1)(c)  allows  for  the  excise-duty  exemption  of  excise  goods  delivered  to  the 
armed  forces  of  any  NATO  member  other  than  the  Member  State  in  which  the  excise  duty  is 
chargeable, for the use of those forces or accompanying civilian staff, or for supplying their messes or 
canteens. The provision covers both intra-EU movements and movements from third countries. 

EN 

9 

  EN 

 
                                                 
excise goods to the armed forces of any Member State other than that in which the excise duty 
is chargeable, for the use of those forces or accompanying civilian staff, or for supplying their 
messes  or  canteens  where  such  forces  are  taking  part  in  a  defence  effort  carried  out  for  the 
implementation of a Union activity under the CSDP. 

EN 

10 

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2019/0096 (CNS) 

Proposal for a 

COUNCIL DIRECTIVE 

amending Directive 2006/112/EC on the common system of value added tax and 
Directive 2008/118/EC concerning the general arrangements for excise duty as regards 
defence effort within the Union framework 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 113 thereof, 

Having regard to the proposal from the European Commission, 

After transmission of the draft legislative act to the national parliaments, 
Having regard to the opinion of the European Parliament1, 
Having regard to the opinion of the European Economic and Social Committee2, 

Acting in accordance with a special legislative procedure, 

Whereas: 

(1) 

(2) 

(3) 

1 
2 
3 

4 

Council  Directive  2006/112/EC3  provides,  under  certain  conditions,  an  exemption 
from value added tax (VAT) for goods and services supplied to and goods imported by 
the armed forces of any State party to the North Atlantic Treaty when such forces are 
taking part in the common defence effort outside their own State. 
Council  Directive  2008/118/EC4  provides  an  exemption  from  excise  duty  for  excise 
goods intended to be used by the armed forces of any State party to the North Atlantic 
Treaty other than the Member State within which the excise duty is chargeable, for the 
use  of  those  forces,  for  the  civilian  staff  accompanying  them  or  for  supplying  their 
messes  or  canteens,  subject  to  conditions  and  limitations  laid  down  by  the  host 
Member State. 

Such  exemptions  are  not  available  where  the  armed  forces  of  a  Member  State  are 
taking part in activities under the common security and defence policy (CSDP) as set 
out  in  Chapter 2,  Section 2  of  Title V  of  the  Treaty  on  the  European  Union  (TEU). 
Priority should be  given to  the need to  improve  European  capabilities in  the field  of 
defence and crisis management and to strengthen the Union security and defence. The 
High  Representative  of  the  Union  for  Foreign  Affairs  and  Security  Policy  and  the 
Commission in their Joint Communication of 28 March 2018 on the Activity Plan on 

OJ C , , p. . 
OJ C , , p. . 
Council  Directive  2006/112/EC  of  28 November  2006  on  the  common  system  of  value  added  tax 
(OJ L 347, 11.12.2006, p. 1). 
Council Directive 2008/118/EC of 16 December 2008 concerning the general arrangements for excise 
duty and repealing Directive 92/12/EEC (OJ L 9, 14.1.2009, p. 12). 

EN 

11 

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(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

Military  Mobility5  recognised  the  overall  need  for  aligning  the  VAT  treatment  of 
defence  efforts  within  the  Union  framework  and  the  North  Atlantic  Treaty 
Organisation (NATO) umbrella. 

Defence effort carried out for the implementation of a Union activity under the CSDP 
covers military missions and operations, activities of battlegroups, mutual assistance, 
permanent  structured  cooperation  (PESCO)  projects  and  activities  of  the  European 
Defence  Agency  (EDA).  It  should  however  not  cover  activities  under  the  solidarity 
clause  established  in  Article 222  of  the  Treaty  on  the  Functioning  of  the  European 
Union or any other bilateral or multilateral  activities between Member States that do 
not  relate  to  defence  effort  carried  out  for  the  implementation  of  a  Union  activity 
under the CSDP. 

An exemption  from  VAT should thus  be introduced to  cover the supply  of goods or 
services intended either for the use by the armed forces of a Member State or by the 
civilian staff accompanying them, or for supplying their messes or canteens when such 
forces  take  part  in  a  defence  effort  carried  out  for  the  implementation  of  a  Union 
activity  under  the  CSDP  framework  outside  their  Member  State.  Supplies  of  goods 
and  services  for  the  armed  forces  of  the  Member  State  in  which  those  goods  or 
services are supplied should be excluded from the VAT exemption. 

An  exemption  from  excise  duty  should  also  be  introduced  covering  excise  goods 
supplied for the use of the armed  forces  of any  Member State other than that within 
which  the  excise  duty  is  chargeable,  when  such  forces  take  part  in  a  defence  effort 
carried  out  for  the  implementation  of  a  Union  activity  under  the  CSDP  outside  their 
Member State. 

In addition, it is necessary to provide for exemption from VAT where goods imported 
by the armed forces of a Member State are intended for the use of those forces or of 
accompanying  civilian  staff  or  for  supplying  their  messes  or  canteens,  when  taking 
part in a defence effort carried out for the implementation of a Union activity under the 
CSDP outside their Member State. 

Similarly  to  the  exemption  for  NATO  defence  effort,  the  exemption  for  the  defence 
effort carried out for the implementation of a Union activity under the CSDP should be 
limited  in  scope.  Only  expenses  incurred  in  respect  of  tasks  directly  linked  to  a 
defence  effort  should  be  eligible  for  exemption.  Tasks  performed  exclusively  by 
civilian  staff  or  performed  exclusively  by  using  civilian  capabilities  should  not  be 
covered by the exemption. Nor should the exemption cover items such as spare parts 
to  military  equipment  or  transport  services  that  the  armed  forces  of  a  Member  State 
acquire for use within that Member State or extend to the construction of transport or 
communication and information systems infrastructures. 

Since  the  objective  of  this  Directive  to  align  the  VAT  and  excise  duty  treatment  of 
defence  efforts  under  the  Union  and  NATO  frameworks  cannot  be  sufficiently 
achieved by the Member States but can be better achieved at Union level, the Union 
may  adopt  measures  in  accordance  with  the  principle  of  subsidiarity  as  set  out  in 
Article 5  of  the  Treaty  on  the  European  Union.  In  accordance  with  the  principle  of 
proportionality  as  set  out  in  that  Article,  this  Directive  does  not  go  beyond  what  is 
necessary in order to achieve that objective. 

5 

JOIN(2018) 5, of 28 March 2018. 

EN 

12 

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(10) 

In  accordance  with  the  Joint  Political  Declaration  of  28 September  2011  of  Member 
States  and  the  Commission  on  explanatory  documents6  Member  States  have 
undertaken  to  accompany,  in  justified  cases,  the  notification  of  their  transposition 
measures  with  one  or  more  documents  explaining  the  relationship  between  the 
components  of  a  directive  and  the  corresponding  parts  of  national  transposition 
instruments. With regard to this Directive, the legislator considers the transmission of 
such documents to be justified. 

(11)  Directives 2006/112/EC and 2008/118/EC should therefore be amended accordingly, 

HAS ADOPTED THIS DIRECTIVE: 

Article 1 

Amendments to Directive 2006/112/EC 

Directive 2006/112/EC is amended as follows: 

(1) 

in Article 22 the following first paragraph is inserted: 

‘The  application  by  the  armed  forces  of  a  Member  State  taking  part  in  a  defence 
effort  carried  out  for  the  implementation  of  a  Union  activity  under  the  common 
security and defence policy (CSDP), for their use or for the use of the civilian staff 
accompanying them, of goods which they have not purchased subject to the general 
rules governing taxation on the domestic market of a Member State shall be treated 
as an intra-Community acquisition of goods for consideration, where the importation 
of  those  goods  would  not  be  eligible  for  the  exemption  provided  for  in 
Article 143(1)(ga).’; 

(2) 

in Article 143(1), the following point (ga) is inserted: 

‘(ga)  the  importation  of  goods  into  Member  States  by  the  armed  forces  of  other 
Member  States  for  the  use  of  those  forces  or  the  civilian  staff  accompanying 
them or for supplying their messes or canteens when such forces take part in a 
defence effort carried out for the implementation of a Union activity under the 
CSDP;’; 

(3) 

in Article 151(1), the following points (ba) and (bb) are inserted: 

‘(ba)  the supply of goods or services within a Member State, intended either for the 
armed  forces  of  other  Member  States  for  the  use  of  those  forces,  or  of  the 
civilian  staff  accompanying  them,  or  for  supplying  their  messes  or  canteens 
when  such  forces  take  part  in  a  defence  effort  carried  out  for  the 
implementation of a Union activity under the CSDP; 

(bb)  the  supply  of  goods  or  services  to  another  Member  State,  intended  for  the 
armed forces of any Member State, other than the Member State of destination 
itself, for the use of those forces, or of the civilian staff accompanying them, or 
for supplying their messes or canteens when such forces take part in a defence 
effort carried out for the implementation of a Union activity under the CSDP;’. 

6 

OJ C 369, 17.12.2011, p. 14. 

EN 

13 

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Article 2 

Amendment to Directive 2008/118/EC 

In Article 12(1) of Directive 2008/118/EC, the following point (ba) is inserted: 

‘(ba)  by the armed forces of any Member State other than the Member State within 
which the excise duty is chargeable, for the use of those forces, for the civilian 
staff accompanying them or for supplying their messes or canteens when such 
forces  take  part  in  a  defence  effort  carried  out  for  the  implementation  of  a 
Union activity under the common security and defence policy;’. 

Article 3 

Transposition 

1. 

Member  States  shall  adopt  and  publish,  by  30 June  2022  at  the  latest,  the  laws, 
regulations  and  administrative  provisions  necessary  to  comply  with  this  Directive. 
They shall forthwith communicate to the Commission the text of those provisions. 

They shall apply those measures from 1 July 2022. 

When  Member  States  adopt  those  provisions,  they  shall  contain  a  reference  to  this 
Directive  or  be  accompanied  by  such  a  reference  on  the  occasion  of  their  official 
publication. Member States shall determine how such reference is to be made. 

2. 

Member States shall communicate to the Commission the text of the main provisions 
of national law which they adopt in the field covered by this Directive. 

Article 4 

Entry into force 

This Directive shall enter into force on the twentieth day following that of its publication in 
the Official Journal of the European Union. 

Article 5 

Addressees 

This Directive is addressed to the Member States. 

Done at Brussels, 

For the Council 
The President 

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