VAT Modernization and Competition in the Cross-border Mail Market

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are sometimes termed, are contractual agreements with major mailers that include customizedpricing incentives. Volume discounts are common practice in all network industries and oftenthese agreements are individually negotiated and not following pre-formulated discountschemes.In contrast to individually negotiated contract agreements stand pre-formulated contractterms or other typically standardized or published terms and conditions. The existence or useof pre-formulated discount incentives, such as for high volume bulk mail products, would initself not constitute an individually negotiated term. Council Directive 93/13/EEC of 5 April1993 on unfair terms in consumer contracts defines that “a term shall always be regarded asnot individually negotiated where it has been drafted in advance and the consumer hastherefore not been able to influence the substance of the term, particularly in the context of apre-formulated standard contract.”2.3.3 VAT on Postal Services in the UKAs an effect of the ruling, the UK Budget Note of June 2010 states that “the VAT exemptionunder Group 3 of Schedule 9 to the VAT Act 1994 (VATA) will be amended to restrict thescope of the exemption to supplies of public postal services and incidental goods made by theUSP. The exemption will only apply to supplies of services made under a licence duty,including those where – pursuant to a licence duty – the USP allows private postal operatorsaccess to its postal facilities.” 25 The measures will apply a standard tax rate to certain postalservices, but not all services. 26 The continuation of VAT exemptions to a range of products inone country different than in others would mean that the challenges of external fiscalneutrality will not be resolved. The next section will discuss the effects of VAT in the contextof the cross-border mail market.3. VAT AND THE CROSS-BORDER MARKET25 Budget Note 41, 22 June 2010, HM Revenue and Customs, http://www.hmrc.gov.uk/budget2010/bn41.htm, consulted on 5October 201026 The overwhelming majority of Royal Mail’s customers will be unaffected by the Government’s proposed changes in VAT andFirst and Second Class stamped and meter (franked) mail, Standard parcels and the large majority of Royal Mail’s otherservices will continue to be exempt from VAT.http://www.royalmail.com/portal/rm/content1?catId=400147&mediaId=118600981, consulted on 29 September 201014
VAT exemption for postal services as understood under article 13 (A)(1)(a) has always beentaken to include inbound cross-border postal services. It was never suggested that crossborderpostal services were VAT inclusive. Hence, none of the universal service providershas ever paid VAT on terminal dues. This includes Member States that do apply VAT todomestic services like Sweden.However, some confusion has arisen regarding the implementation VAT Package 2010adopted in 2008 intends to modernize and simplify the existing rules relating to cross-bordersupplies of services. This section summarizes how the changes will impact on the crossborderpostal service and discusses the areas where uncertainty and complications occurwhen implementing the viewpoints as expressed in the Commission working paper. 273.1 VAT Package 2010 and Terminal DuesBefore considering the effects from introducing the VAT viewpoints of the EuropeanCommission, it is important to treat the new place of supply rules as included under theEuropean Directive 2008/8/EC of 12 February 2008 amending the previously discussedDirective 2006/112/EC as regards the place of supply of services, in particular transport andpostal services.3.1.1 New Place of Supply RulesThe amendments as included under the VAT Package 2010 change the place of supply rulesfollowing the Commission’s strategy of modernization and simplification of the operation ofthe common VAT system. These changes were necessary because of the realizations in theinternal market, globalization, deregulation and technology change together createdenormous changes in the volume and pattern of cross-border services. It was the properfunctioning of the Community’s internal market project that required amending the rules ofsupply of services. Following the general rule as stipulated in article 44 of the Directive, theplace of supply of services to taxable persons shall be the place where that person hasestablished his business and not where the transport takes place (which is considered theMember State where the supplier is based).27 Under reference taxud.d.1(2010)13765, published on 9 March 201015
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VAT Modernization and Competition in the Cross-border Mail Market

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