VAT Modernization and Competition in the Cross-border Mail Market

∗ Considering the strong differences in the implementation of the universal serviceobligation, the opinion of the Commission implies a reversal in the Communityefforts to accomplish a harmonised application of the postal VAT rules. This woulddrastically implicate the bulk mail segment and other segments that face differentuniversal service treatment in the national markets;∗ The decision, when implemented, could damage cross-border markets and lead toincentives for de-location of mail services outside the EU. De-location and re-routingof mail incentives would also damage the quality of the mail service not only becauseof longer travel times, but also because transit times in EU regulations do not applyfor non-EU originating mail;∗ Introducing VAT on inbound cross-border postal services is out of line withinternational treaty obligations including the principles laid down in the Constitutionof the Universal Postal Union and the Universal Postal Convention of 2008;∗ The Commission working paper does not address the main practical considerations(audit, feasibility, invoicing, etc.) and complications that need to be addressed bypostal operators leading to high transaction costs;∗ The suggested VAT structure for the cross-border postal services would impede thedevelopment of e-commerce and cross-border trade, would damage the universalservice provision and the cross-border postal market at large.This paper will discuss and explain each of these challenges whilst putting it in theframework of the remuneration practices in the cross-border market and the recent Courtjurisprudence. It will discuss the amendments to the VAT Directive and the impact of thenew place of supply rules on cross-border VAT treatment. This will be discussed in thecontext of the strongly diverging implementation of the universal service obligation (USO) inthe EU member states and the effects of fiscal neutrality. The suggested implementation ofthe new place of supply rules, in relation with the diversity in universal service definitions,not only creates further problems for transparency in the market, it also infracts with theCommunity commitments towards harmonised application of VAT rules, so strongly soughtafter by the Commission itself.To respond to this call for more certainty and transparency in the cross-border market, theCommission should consider defining the delivery of inbound cross-border postal services as2