VAT treatment of postal services

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Kerngegevens

Document date 15-06-2009
Publication date 22-01-2013
Reference 11024/09
From the forthcoming Swedish Presidency
To Working Party on Tax Questions - Indirect Taxation (VAT)
External link original PDF
Original document in PDF

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Text

COUNCIL OF PUBLIC Brussels, 15 June 2009

THE EUROPEAN UNION

11024/09

Interinstitutional File:

2003/0091 (CNS) LIMITE

FISC 87

NOTE from: the forthcoming Swedish Presidency to: Working Party on Tax Questions – Indirect Taxation (VAT) Subject: VAT treatment of postal services

Background

The current exemption of certain services effected by the public postal services in Article 132(1)(a)

of the VAT Directive 1 and the exemption of supply of stamps valid for use for postal services in

Article 135 (1)(h), dates from the 1970s 2 , when the postal sector was characterised by a monopoly

situation. These provisions have not been updated since. In the meantime, however, the postal sector has undergone major changes. The current VAT exemption causes distortions of competition between postal services provided by public and private operators since only the services of the former are exempt. Moreover, different interpretation of the current exemptions by Member States has led to complexity and legal uncertainty for the operators.

In view of the changes in the postal sector, and account taken of the distortions of competition arising from the application of the VAT exemption, the Commission submitted in 2003 a proposal for a Directive as regards VAT on services provided in the postal sector and postage stamps, COM (2003) 234 i.

1 Council Directive 2006/112/EC i, OJ L 347, 11.12.2006, p 1.

2 Article 13 A (1) (a) and Article 13 B (e) of the Sixth Council Directive 77/388/EEC i ("the

Sixth VAT Directive")

11024/09 GM/mpd 1 The main objective of the proposal was to counter the distortions of competition in the postal sector and establish a level playing field in the European postal market while protecting certain postal users from higher postal prices.

The initial proposal from 2003 was amended in 2004 3 , taking into account the opinion of the

European Parliament. Inter alia, the range of services to which a reduced VAT rate could be applied increased from 2 kg to 10 kg.

The main features of the proposal, as amended, are the following.

• Removal of the exemption for the public postal services and postage stamps. • Amended place of supply rules, to ensure only one VAT rate for most private mail and avoid

the use of different sets of stamps.

• Option to apply a reduced VAT rate to standard postal services relating to addressed postal

items up to 10 kg.

• Option for a special tax accounting scheme for postal operators as a simplification measure. • Rules regarding the VAT treatment of terminal dues.

The proposal has been discussed at four meetings in the Council, the last meeting was held 15 June

2004. At this meeting, the Irish Presidency presented a Presidency note 4 in which it sought to

identify grounds for agreement on the broader policy and outstanding technical issues. Hence, the Presidency proposed four different broad approaches for discussion by the Group; 1) provide for taxation but with an option to exempt all public postal services and postage stamps, 2) provide for taxation but with an option to exempt "standard postal services" for addressed postal items of 2 kg and under, 3) provide for taxation at the standard rate but with an option to use a reduced VAT rate for the postal items mentioned under 2, and finally 4) provide for taxation of all postal services at the standard rate applicable in each Member State. However, the Council was not able to reach an agreement at that time and no further discussions in the Council have taken place since.

3 COM (2004) 468 final

4 Note 10148/04, FISC 122

Recent developments in the postal sector, notably the adoption of the Third Postal Directive 5 which

sets the final date for achieving full market opening by 31 December 2010, entail a need for a review of the VAT treatment of postal services. Furthermore, in a reference for a preliminary ruling, the European Court of Justice was asked about the correct interpretation of the exemption in Article 132(1)(a) of the VAT Directive. The Court has in April 2009 delivered its judgement (Case C- 357/07, TNT Post UK Ltd).

Against this background, the Presidency would like to discuss with Member States the need for resuming the negotiations in Council on the Commission’s proposal from 2003. This paper aims to outline the recent developments and serve as a basis for the discussion.

Recent developments

Postal Directive

Postal services in the EU are covered by the 1997 Postal Directive 6 . This created a regulatory

framework which guarantees citizens a universal service, while gradually limiting the scope of the reserved area. The said Directive has aimed at ensuring the best possible service through a gradual opening in successive stages of the EU postal market.

The original Postal Directive has been supplemented with a second Postal Directive of 10 June

2002 7 and a third Postal Directive of 20 February 2008 8 . The Third Postal Directive should be

implemented in all Member States by 31 December 2010, setting this as the final date for achieving full market opening. However, certain Member States have the possibility to postpone full market opening by two more years as a maximum (CZ, EL, CY, LV, LT, LU, HU, MT, PL, RO and SK).

5 Directive 2008/6/EC i of the European Parliament and Council of 20 February 2008,OJ L 52,

27.2.2008, p. 3

6 Directive 97/67/EC i of the European Parliament and Council of 15 December 1997, OJ L 15,

21.1.98, p.14

7 Directive 2002/39/EC i of the European Parliament and Council of 10 June 2002, OJ L 176,

5.7.2002, p. 21

8 Directive 2008/6/EC i

In this context, of particular interest are the following features of the current and the Third Postal

Directive.

• The current Postal Directive obliges the Member States to ensure the provision of a

“universal postal service”. This covers a minimum range of basic postal services at all points in their territory at affordable prices for all users (Article 3). According to Article 3 in the Third Postal Directive, Member States are still obliged to take steps to ensure the provision of a universal service as regards a minimum range of basic postal services.

• The current Postal Directive obliges the Member States to designate one or more “universal

service providers”, so called “USPs”, which shall ensure the provision of the “universal postal service” (Article 4). According to Article 4 in the Third Postal Directive, the Member States are still obliged to ensure that the provision of the universal service is guaranteed. However, the Article states that the Member States may designate one or more undertakings as USPs. Hence, the Member States are no longer obliged to designate a USP.

• The former national postal monopolies are abolished. Hence, it is allowed for private

operators to supply postal services. However, according to the current Postal Directive, Member States may (optional) continue to reserve certain postal services to the USPs (Article 7). According to Article 7 in the Third Postal Directive, Member States shall not grant or maintain in force exclusive or special rights for establishment and provision of postal services. Hence, it will no longer be possible for the Member States to limit the competition in respect of certain postal services.

The Court’s judgment in Case C-357/07, T T Post UK Ltd

The TNT Post UK Ltd case refers to the interpretation of the expression ”the public postal services” in article 13 A (1)(a)of the Sixth VAT Directive and whether the exemption should be interpreted as requiring or permitting a Member State to exempt all postal services provided by “the public postal services”. The questions were referred by the Queen’s Bench Division of the High Court of Justice of England and Wales.

The Court ruled that the concept of ”public postal services” in Article 13A(1)(a) must be interpreted to cover operators, whether they are public or private, who undertake to provide, in a Member State, all or part of the universal postal service, as defined in Article 3 of the Postal Directive. The Court also found that the exemption provided for in Article 13A(1)(a) of Sixth VAT Directive applies to the supply by the public postal services acting as such – that is, in their capacity as an operator who undertakes to provide all or part of the universal postal service in a Member State – of services other than passenger transport and telecommunications services, and the supply of goods incidental thereto. However, the exemption does not apply to supplies of services or of goods incidental thereto for which the terms have been individually negotiated.

State of play – the current VAT treatment of postal services

The Presidency takes the view that the ECJ case TNT Post UK Ltd to a certain extent clarifies the scope of the current VAT exemption. However, the Presidency appreciates that a number of VAT issues remain unsolved and that new ones have arisen.

Firstly, the scope of the VAT exemption will now depend on the scope of the "universal service", as defined by every Member State (since the postal Directive sets only a minimum scope for that universal service, which Member States may enlarge). This works counter to harmonisation in the postal sector. In addition, it is not clear what would happen in cases where no operator is designated as the universal service provider (pursuant to Article 4 of the Third Postal Service directive).

Secondly, questions as to the correct interpretation of the judgment have already arisen. For example, what does the expression "individually negotiated terms" mean in practice? What would happen, for instance, where within the "universal service" special (and lower) prices are set, not individually for a particular customer, but in general for all customers fulfilling certain conditions (for instance, a minimum amount of mail to be delivered within a certain time frame). While in this situation the lower price has not been negotiated "individually" it is clear that the conditions set for access to that lower price will be met only by certain business customers.

Thirdly, problems linked to the VAT exemption itself will remain, because it implies that the operators benefitting from such an exemption cannot deduct input VAT. It is so indeed that the VAT exemption is an obstacle to investment and it may affect how operators organise their business. It is also likely that the exemption will create complexities arising from the need to apply the pro rata rule.

Finally, it could be noted that the TNT-ruling does not address the question of the exemption for postage stamps, the VAT treatment of terminal dues etc.

To sum up, the Presidency takes the view that the TNT-ruling does not clarify all uncertainties regarding the VAT treatment of postal services. Moreover, the scope of the exemption will continue to diverge, since the extent of the universal service obligation is different in every Member State.

Given that the market opening of the postal sector is a reform in order to meet the Lisbon goals, the remaining VAT problems are likely to hamper a well functioning, fully liberalised European postal market.

Questions

Question 1: Are the Member States of the opinion that negotiations on the basis of the

Commission’s proposal should now be resumed?

Question 2: If the Member States are not in favour of resumed negotiations, are other measures required or is the situation that follows from the TNT Post UK Ltd judgement acceptable?

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