VAT Modernization and Competition in the Cross-border Mail Market

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As seen under section 3.2, introducing VAT in the cross-border market, where different VATrates and strongly different scopes of universal services apply, would contravene the intentsof Article 13 of the Postal Directive to apply a non-discriminatory remuneration treatment.Applying different VAT rates in the cross-border mail market (considering its specificnature) would constitute a breach of the principle of external neutrality (see 2.2) and createdistortions that could incentivize mail de-location and further decline in the intra-Communitymail market. The majority of intra-Community mail flows would be further affected by thesimultaneous tendencies of centralization (remail) and decentralization (local mail) as well asre-routing of mail activities based on new or more favorable constructions.3.3.5 Economic EffectsAs a result of implementing the proposed VAT rules, the costs for DOs will increasesignificantly. The significance of the problem resides in the fact that a major share of the coststructure is related to labor and therefore not reclaimable for VAT. At the same time it shouldbe considered that regulated postal operators possess very limited flexibility for priceincreases because of cumbersome price controls and approval mechanisms. Effectively thereis no room to compensate for the increased net-cost as a result from such a rule. Additionally,volumes and efficiencies would be harmed by delocation, remailing and re-routing initiativesgenerating smaller cross-border mail flows, increasing the operational costs per item.Delocation, non-physical re-routing and other processes (including incentives for e-substitution) would shrink the cross-border market in terms of both volume and revenue.Other economic effects can be expected from changes in payment channels, the presentationand preparation of mail as well as operational costs related to changing customer behavior.Simultaneously, implementing the package would introduce discrimination betweencustomers, in particular between foreign and domestic mailers as well as between those thathave local subsidiaries and those that have not; those that are located within the territory ofthe European Union and those based in third countries. It would hurt some mailersdisproportionately harder than others, depending on the scope of the universal service in thesending and destination country, the applied standard VAT rate and other arbitraryconditions. Finally, the VAT rules would discriminate between DOs operating in the crossbordermarket and operators in third countries that are not liable to VAT.26
In the situation that cross-border mail services would become VAT inclusive, this woulddirectly lead to a great number of challenges from the operational perspective. Assuming thatthe Commission’s interpretation is applied, sending DOs will need to segregate the mail intoVAT liable and VAT exempt flows. Such segregation will imply additional costs in both thesending and the receiving end. At the sending end, in the worst case, it will result in doublingthe number of dispatches to be prepared and dispatched. Preparation of a dispatch carries afixed cost regardless of the volumes dispatched.At the receiving end a split of dispatches will imply additional sampling and duplication ofaccounting forms. Further administration costs will arise due to additional checking ofdispatches in order to detect remail activities. Costly and time-consuming IT development inorder to accommodate such segregation will be required by all Operators. In addition,checking the dispatches for detection of whether VAT liable mail erroneously has beendispatched in VAT exempt dispatches and vice versa is rendered extremely costly, if it ispossible at all (due to the differences in the scope of the USO among sending Operators).3.3.6 Other Practical ConsiderationsIt is evident that the implementation of the VAT package would lead to further practicalobstacles and complications. Besides the number of terminal dues rates, transitional regimes,further complications are expected as far as different invoices need to be issued based on thetype of service provided and whether each of these services are liable to VAT or not. Thiswould result in increased complications in invoicing and payment (which taxes can bereclaimed (considering common costs)) and reduced transparency in the cross-border market.Another reason why postal VAT rules are so difficult to implement relates to how consumers,small and bulk mailers pay for their postal services. Bulk mailers use both meters (usingpayment in advance technology) and printed postage impressions (PPI) which is mainly apayment-in-arrears channel. Walsh (2010) makes the point that “it is less clear thattechnological and fiscal neutrality will be protected if VAT inclusive prices across paymentchannels are distorted due to differences in the treatment of substitutable postal productswhich, in substance, have the attributes of universal services but where the regulatory form is27
Page 1 and 2: Paul SCHOORL - CRNI Conference, 19
Page 3 and 4: a de facto universal service obliga
Page 5 and 6: apid growth of specialized services
Page 9 and 10: Provider (USP) so that the services
Page 11 and 12: the removal of the VAT exemption co
Page 13 and 14: Although TNT lost its case, the Cou
Page 15 and 16: VAT exemption for postal services a
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Page 19 and 20: for example, it avoided including p
Page 21 and 22: outinely charged for bulk parcels f
Page 23: Commissioner Mr. Barnier in his spe
Page 29 and 30: level of Operations and Accounting
Page 31 and 32: of the described complications in t

VAT Modernization and Competition in the Cross-border Mail Market

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