To ask the Secretary of State for Defence what discussions he has had with (a) ministerial colleagues and (b) other European Governments with a view to creating a VAT exemption for pan-European defence procurement projects; and if he will make a statement.

The Secretary of State for Defence has had no specific meetings on the issue, although it was raised by some member states in the lead-up to the 19-20 December European Council. The UK position is as set out in the 18-19 November Foreign Affairs Council Conclusions; that while we are willing to look at incentives for co-operation between member states on equipment in general, any such incentive must not result in market distortions and must be consistent with the law. Moreover, any specific tax proposals, including VAT exemptions, must be referred to the Economic and Financial Affairs Council as tax is a sovereign issue for individual member states to decide upon.