Royal Mail should keep its VAT exemption for its universal postal services but be liable to chargeVAT for individually negotiated delivery contracts, the EU’s highest court has been told.
Even though the British postal market is now fully liberalised, Royal Mail remains theuniversal service provider, Juliane Kokott, advocate-general at the European Court of Justice(ECJ), said. As a result, it should continue to benefit from VAT exemption granted to public postalservices, she stated.
As the universal service provider in Britain, Royal Mail had to provide nationwide postalservices at uniform and affordable tariffs, had to provide a nationwide network for the generalpublic, and had to comply with other conditions, Kokott told the court.
However, she took the view that not all services provided by the Royal Mail are, ofnecessity, exempted from value added tax. Rather, the exemption applies only to those serviceswhich are provided in the public interest. The exemption cannot, in any event, apply where itemsare carried at individually negotiated prices, she said.
The advocate-general was giving her legal opinion in a long-running case brought by TNT PostUK which had challenged Royal Mail’s VAT-free status. The Dutch mail group had claimed that thestatus could no longer be justified in a fully liberalised market. TNT Post has to charge Britain’s17.5% VAT rate on all services while Royal Mail is exempt from the tax.
Although the case specifically refers to the situation in the UK, it may set a precedent forthe rest of the EU where the former national monopolist will remain the de facto universal serviceprovider even after full liberalisation in 2011. Competitors in many countries complain that theysuffer competitive disadvantages from having to charge VAT while the public postal operator canoperate at lower prices.
The ECJ will now consider the Advocate General’s opinion. A verdict is expected later thisyear.
