The European Commission has formally told the United Kingdom, Germany and Sweden to change theirlegislation on VAT exemption for postal services, describing it as not compatible with the EU VAT
Directive. Competitors have long claimed that VAT-free status for Deutsche Post and Royal Maildistorts a free market for letter and package delivery services.The EU executive said that the United Kingdom and Germany exempt from VAT all or most postalservices supplied by their former postal monopolies, while Sweden does not exempt postal services.If the relevant national legislations are not amended, the Commission said it may decide to referthe matter to the European Court of Justice.
The Commission said it was responding to a number of complaints. But it was aware that thesethree Member States are not the only ones where similar problems exist and it regarded these astest cases. The responses of the three countries to letters of formal notice sent in April 2006 hadnot been satisfactory, it noted.
“The VAT exemption for postal services is still part of Community rules and should be appliedin a way that minimizes distortions of competition between former monopolies and market entrants soas to ensure that all operators enjoy the freedom to provide postal services across Europe,” saidLászló Kovács, European Commissioner for taxation and customs.
Germany and the UK justify the VAT exemptions for Deutsche Post and Royal Mail on the groundsthat these companies are obliged to provide a universal postal service while competitors are freeto select their services. Government spokespersons in both countries again defended theirrespective VAT laws in response to the Commission’s announcement.
But the Commission argued that in competitive postal markets, different tax liabilities arebound to distort competition and can only be justified as regards the strict discharge of theuniversal service obligation. Where for commercial reasons – namely to fend off competition fromother operators – former monopolies offer to some high volume clients pricing and qualityconditions which are not available to the general public, their supplies should be subject to thesame tax liability as their competitors, the EU executive said.
Contrary to the United Kingdom and Germany, Sweden does not exempt postal services, meaningthat Posten charges VAT for all its services. While this ensured there is no distortion ofcompetition, Sweden has nevertheless failed to apply an exemption which remains in Communitylegislation and must be applied in a harmonised manner across the Community, the Commission said.
Looking ahead, the European Commission said it was time that VAT rules dating from the 1970sshould be amended to keep in step with the European postal market of the new century.
