EC Rips 3 Nations on Postal VAT

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The European Commission moved toward legal action last week against Britain, Germany and Sweden over tax policies on postal services.


The EC wants all mail services to be free of value-added taxes to help achieve competition in the postal sector and says the three countries create obstacles to that plan: Sweden imposes VAT on all operators while Britain and Germany exempt only their former monopoly post offices.


Under European legislation, former postal monopolies have not had to pay VAT if they provided general services of public interest, such as delivery of letters for the same price anywhere in their country. In Britain, Royal Mail is considered a universal service provider and exempted from VAT.


VAT is a tax on goods or services collected by an intermediary from the customer. VAT was introduced in France in 1948 and spread to the rest of Europe in the 1960s.


The EC proposed in 2003 adding VAT to services sold by state-run postal organizations across European Union countries. In lieu of VAT-free services, the proposal would remove the exemption for these organizations and thus level the playing field, according to the EC.


With liberalization of postal services occurring in Europe, it has been argued that government postal services have an advantage against privatized companies. If a VAT were not added in the United Kingdom, for example, a private carrier would be required to charge a VAT of 17.5 percent while Royal Mail would charge nothing.


The EC proposal remains blocked. The EU decides tax issues, and the EC is calling upon the EU to resume discussion on its 2003 proposal and adopt it. But with no agreement reached, the EC argues that the postal VAT exemption should apply only as far as the universal service obligation is concerned.


The EC sent "letters of formal notice" to Sweden, Germany and the UK. The nations have two months to reply. If they fail to convince the EC's lawyers, they will have to argue their case before European judges in Luxembourg.


Melissa Campanelli covers postal news, CRM and database marketing for DM News and DMNews.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters


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