VAT Modernization and Competition in the Cross-border Mail Market

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2.3 United Kingdom vs. TNT UK – ECJ Court RulingThe ECJ used the preliminary ruling procedure to resolve questions from national courtsconcerning the interpretation of the VAT Directive and the exemptions as they extend topublic postal services. 21 Postal service providers in the United Kingdom operate underlicences granted by the Postcomm, the national regulating authority. Under its licence, RoyalMail is designated as the sole universal postal service provider and has therefore specificobligations imposed on it.In 2007 TNT Post UK filed a suit against Her Majesty’s Revenue and Customs (HMRC),charging that not only Royal Mail’s services should be VAT exempt now that it competes forbusiness against private carriers such as TNT. The case brought by TNT, asked a series ofquestions on the meaning of ‘public postal services’ in the context of a liberalized regimewhere a designated universal service provider competes with private operators. Following theapplicant’s view, a ‘public postal service’ no longer exists in the fully liberalized market ofthe United Kingdom, so that the exemption cannot be the USP’s alone. If, on the other hand,the exemption would be applicable to the USP alone, the question arises as to which categoryof services. In June 2008, at the European Court of Justice in Luxembourg, TNT Post UKstated its case that the British VAT rules prevent a level playing field for competitors bygranting Royal Mail an exemption for all postal services they provide. 22Ultimately, the ECJ ruled that the expression ‘public postal services’ “refers to the operatorswhich supply the services and not the services themselves, regardless of the status of theprovider of those services.” In its ruling, the definition of public postal service meant theagency that performs a certain (public) service instead of the performance of duties as suchwhich could be delivered by other than the universal service performer alone. In its ownwords: “public postal services must be regarded as operators, whether public or private, whoundertake to supply postal services which meet the essential needs of the population andtherefore, in practice, to provide all or part of the universal postal service in a member state.”One of the complications from the Court ruling is that not all universal services supplied bythe USP are exempted from VAT but only those build on the definition of public interest.21 VAT exemption for public postal services as stipulated under Article 13(A)(1)(a) of the Sixth VAT Directive.22 For example in TNT Annual Report 200812
Although TNT lost its case, the Court took the opportunity to clarify the extent of the RoyalMail's exemption. It confirmed that the VAT exemption was restricted to the provision of‘public postal services', and therefore individually negotiated postal and delivery services aresubject to VAT.The exemption provided for in Article 13A(1)(a) of Sixth VAT Directive applies to thesupply by the public postal services acting as such – that is, in their capacity as an operatorwho undertakes to provide all or part of the universal postal service in a Member State […]and the supply of goods incidental thereto. It does not apply to supplies of services or ofgoods incidental thereto for which the terms have been individually negotiated. 23 Publicpostal services and individually negotiated agreements require some further clarification,which is provided below.2.3.1 Public Postal ServicesIn its ruling the ECJ held that the exemption in Article 13A(1)(a) only applied to serviceswhich were provided by a body which could be described as 'the public postal service' in theorganic sense of that expression. They based this interpretation of the wording of Article13A(1)(a) itself. Consequently the Court held that 'public postal services' must be regarded asoperators, whether they are public or private, who undertake to supply postal services whichmeet the essential needs of the population and therefore to provide all or part of the universalpostal service in a Member State, as defined in Article 3 of the Postal Directive. 24 As far ascross-border postal services are concerned, the remuneration article 13(1) of the PostalDirective makes clear that Community cross-border mail is VAT exclusive. The provisionrequires universal service providers to respect a number of principles “[i]n order to ensure thecross-border provision of the universal service.” This makes inbound cross-border postalservices de jure and de facto a universal service.2.3.2 Individually Negotiated AgreementsPostal operators enter into worksharing agreements with some bulk mailers and offer thempostage discounts in exchange for meeting specific mail presentation criteria, such as presorting,processing, and volume. Individually Negotiated Agreements, as these agreements23 Judgment of the European Court of Justice, Case C-357/07 TNT UK Ltd. vs. Her Majesty’s Revenue and Customs24 Blackwood, Anneliese (2009), R (TNT Post UK Ltd) v HMRC Case C-357/07, Monckton Chambers13
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VAT Modernization and Competition in the Cross-border Mail Market

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