Europe has entered a structural defence expansion cycle. Rising geopolitical tensions, supply chain fragility, energy security concerns, and digital threats are reshaping industrial priorities across the continent.
For manufacturers in automotive, aerospace, electronics, cybersecurity, advanced materials, and energy systems, the opportunity is real. Dual-use capabilities and production synergies make the pivot to defence commercially compelling.
But entering the defence ecosystem is not simply a commercial decision. It is a structural transformation of your regulatory, tax, and customs exposure.
Defence supply chains operate under:
- Heightened VAT complexity across borders
- Dual-use export controls and sanctions
- Customs valuation and origin scrutiny
- Permanent establishment risks from long-term deployments
- Withholding tax exposure on technical and software flows
- Intensified transfer pricing scrutiny
- Real-time digital reporting requirements (ViDA, SAF-T, DRR)
Without upfront tax and customs design, companies risk margin erosion, blocked shipments, delayed tender eligibility, and double taxation.
This whitepaper explains how to pivot with structure — not friction.
WHAT’S IN THE WHITEPAPER?
The European defence market is expanding rapidly, driven by sustained public investment and reinforced by EU funding instruments such as EDIS and EDF. Civil–defence convergence is accelerating, creating real opportunities for industrial players capable of repurposing capabilities and scaling production.
However, regulatory density in defence is significantly higher than in traditional civil markets.
This whitepaper provides a practical framework for:
1. Designing VAT architecture across multi-country supply chains
Centralized VAT planning, use of simplification regimes (triangulation, postponed import VAT, warehousing), and preparation for the ViDA transition.
2. Leveraging customs regimes to unlock liquidity
Customs warehousing, inward processing, temporary admission, end-use relief, and AEO strategies to defer duties and preserve working capital in long-cycle programs.
3. Embedding dual-use and sanctions compliance into operations
Control list classification, licensing strategy, end-use screening, and lifecycle governance under Regulation (EU) 2021/821.
4. Managing permanent establishment and withholding tax risks
Field teams, MRO operations, embedded software, and cross-border technical services require careful structuring to avoid unintended local taxation.
5. Aligning transfer pricing with defence operating models
Long-term public contracts, sensitive intangibles, and cross-border specialization demand robust documentation and profit attribution strategies.
6. Engineering supply-chain flows before execution
Who buys, who imports, who holds title, and when risk transfers determine VAT, customs, and CIT consequences. Flow design is tax strategy.
The central message is clear:
Tax and customs are no longer administrative afterthoughts. They are competitive infrastructure in the defence ecosystem.
KEY TAKEAWAYS
- Defence expansion in Europe is structural, not cyclical.
- Civil industries have real entry opportunities through dual-use alignment.
- VAT registrations, customs duties, and import VAT can materially affect program liquidity if not optimized.
- Export controls and sanctions must be embedded in operational governance — not handled transactionally.
- Flow design (Incoterms, title transfer, warehousing, repair cycles) determines tax exposure.
- Permanent establishment risk increases with technical deployments and on-site support.
- Transfer pricing must reflect defence-specific risk profiles and margin commitments.
- Digital VAT reporting and e-invoicing reforms (ViDA) will reshape compliance architecture by 2030.
CONCLUSION
The pivot to defence is an industrial opportunity — but only for companies that design their regulatory and tax infrastructure as carefully as their production lines.
Speed matters in defence procurement. But structured speed wins.
Companies that industrialize early — with traceability, licensing foresight, VAT optimization, customs regime orchestration, and robust transfer pricing governance — will gain competitive preference across the European and allied supply chain.
The difference between opportunity and operational risk lies in architectural design.
This whitepaper provides the blueprint.
