Taxing War.

Introduction

The world is getting quite scary as shown by the incidents taking place in Guadalajara Jalisco the 22 of February of 2026, it only shows how unpredictable times currently are.

As geopolitical tensions arise worldwide and due to the sustained pressure for NATO members to meet or exceed the 2 percent defense spending benchmark have prompted countries worldwide to reassess how military expansion should be financed. Increasingly, tax policy is being positioned as a structural instrument to offset defence costs or straight up repelling attacks to their territory. The following jurisdictions illustrate distinct yet converging approaches.

France. Targeted Taxation of High-Net-Worth Individuals

France has publicly debated increasing defence expenditure toward 3 percent of GDP in response to evolving security risks and alliance commitments. Within this discussion, policymakers have considered enhanced taxation of high-net-worth individuals as a means of funding expanded military capacity. While not yet enacted as a formal defence-dedicated levy, the proposal reflects a progressive fiscal orientation: allocating a greater share of the financial burden to those with the highest economic capacity.

Netherlands. Surcharge on Individual and Corporate Income Tax

The Netherlands has proposed a more explicit fiscal mechanism. The government announced plans for a surcharge on individual income tax and corporate income tax, commonly referred to as a “freedom tax,” intended to generate approximately €5 billion annually to finance increased defence spending. This approach establishes a direct link between taxation and security expenditure, introducing transparency but also elevating the effective tax burden on both individuals and corporate entities.

Switzerland. Temporary VAT Increase to Modernize Defence

Switzerland has proposed a temporary increase of 0.8 percentage points in its standard VAT rate for a ten-year period to fund military modernization. Unlike targeted income-based measures, this approach spreads the fiscal burden across the broader consumer base.

A VAT increase has direct commercial implications. Businesses must adjust pricing models, update invoicing systems, and ensure compliance with VAT registration and reporting requirements. Cross border supply chains may require recalibration to reflect altered cost structures.

Tax planning considerations include reviewing supply chain structuring, VAT grouping mechanisms, and cross-border service treatment. Businesses with Swiss operations should proactively align compliance systems to accommodate rate adjustments

Ukraine. Wartime Taxation as a Fiscal Necessity

Ukraine presents a markedly different context. In late 2024, amid ongoing armed conflict, the country enacted its first wartime tax increases, including higher levies on business activity and financial institutions. These measures were explicitly introduced to sustain defence operations and maintain essential state functions. In wartime circumstances, taxation serves not merely as fiscal policy but as a mechanism of national resilience. Revenue mobilization becomes urgent, and compliance frameworks may evolve rapidly.

Migration consequences are significant. Armed conflict has generated substantial outward migration, temporary protection frameworks across the European Union, and evolving tax residency considerations for displaced individuals.

From a tax standpoint, emergency measures may affect liquidity planning, treaty relief mechanisms, and compliance timing. Cross-border businesses must carefully document changes in economic substance and assess whether force majeure or extraordinary circumstances impact permanent establishment analysis.

Conclusion

The current global climate demonstrates that defence policy and fiscal policy are increasingly inseparable. From the instability reflected in local incidents such as those witnessed in Guadalajara on 22 February 2026, to broader geopolitical tensions affecting Europe and Eastern Europe, uncertainty has become a defining characteristic of the present era. In response, governments are recalibrating not only their military strategies but also their tax systems.

Sources:

Reuters, “New Dutch government plans ‘freedom tax’ to fund defence spending”https://www.reuters.com/business/new-dutch-government-plans-freedom-tax-fund-defence-spending-2026-01-30/

Politico, “France considers increase in defence spending to 3% target”https://www.politico.eu/article/france-eric-lombard-emmanuel-macron-economy-minister-increase-defense-spending-to-3-percent-target/

Reuters, “Ukraine imposes first wartime tax hikes to fight Russian invasion”https://www.reuters.com/world/europe/ukraine-imposes-first-wartime-tax-hikes-fight-russian-invasion-2024-11-28/

Swissinfo, “Switzerland plans VAT increase for 10 years to revamp military”https://www.swissinfo.ch/eng/switzerland-plans-vat-increase-for-10-years-to-revamp-military/90851611