VATupdate

Flashback on ECJ Cases C-357/07 (TNT Post UK) – Concept of ‘public postal services’

On April 23, 2009, the ECJ issued its decision in the case C-357/07 (TNT Post UK). This case related to the Exemption with regard to Public Postal Services.


Article in the EU VAT Directive

Article 132(1)(a) of Directive 2006/112

Article 132 (Exemption)
1. Member States shall exempt the following transactions:
(a) the supply by the public postal services of services other than passenger transport and telecommunications services, and the supply of goods incidental thereto;


Facts

  • Royal Mail, as the sole universal postal service provider in the United Kingdom, provides a large range of postal services to any undertaking or individual wishing to use its services. Those postal services are provided by means of an integrated national network which currently services around 27 million addresses six days a week subject to a public interest regulatory regime which is unique to Royal Mail amongst all postal operators. Letters and other mail are collected by Royal Mail from various locations, namely approximately 113 000 pillar boxes, 14 200 post offices and 90 000 business premises. Royal Mail employs approximately 185 000 persons in the United Kingdom.
  • The postal services which Royal Mail is obliged to supply to the public under the terms of its licence account for the substantial majority both of the total volume of mail handled by that company and of the total revenues it earns from its postal operations. Taking into account Royal Mail’s ‘letterpost’ business, around 90% of its activities, measured by reference to revenue, are subject to regulatory conditions and requirements that have been imposed only on Royal Mail and not on any other postal operator in the United Kingdom.
  • TNT Post, which is part of the TNT Group which operates in more than 200 countries and employs over 128 000 people, provides postal distribution services for pre-sorted and unsorted business mail. Its business is the collection, provision of mechanised and manual sorting services (for unsorted mail), processing and delivery by road to a Royal Mail regional depot of its customers’ mail. Those services are known as ‘upstream services’.
  • On 6 April 2004, TNT Post entered into an agreement with Royal Mail under which Royal Mail agreed to provide ‘downstream services’, that is, to deliver the mail that TNT Post had collected, sorted and delivered by road to one of Royal Mail’s regional depots. That agreement was made in accordance with the conditions of the licence held by Royal Mail, which requires it to provide access to its postal facilities to any postal operator or user seeking such access and to negotiate in good faith with a view to agreeing the terms of such access. TNT Post does not currently provide any ‘downstream’ services itself.
  • The referring court also states that the principal market for business mail, which accounts for 85% of TNT Post’s United Kingdom mail volumes, lies in the financial services sector. Since financial institutions are unable to recover all the input VAT they incur, it is in TNT Post’s commercial interest to minimise the amount of VAT it has to charge its customers.
  • The Value Added Tax Act 1994, as amended by the Postal Services Act, provides that the conveyance by Royal Mail of postal packets, which includes letters, is exempt from VAT, whereas the services provided by TNT Post (which, that company contends, are the same as those provided by Royal Mail) are subject to VAT at the standard rate of 17.5%.

Questions

1.     a) How is the expression “the public postal services” in Article 13A(1)(a) of the
Sixth VAT Directive (Directive 77/388/EEC) (now Article 132(1)(a) of Directive 2006/112) to be interpreted?
b) Is the interpretation of that expression affected by the fact that postal services in a Member State have been liberalised, there are no reserved services within the meaning of Council Directive 97/67/EC, as amended, and there is one designated universal service provider that has been notified to the Commission pursuant to that Directive (such as Royal Mail in the United Kingdom)?
c) in the circumstances of the present case (which are as set out in b) above) does that expression include
(i)    only the sole designated universal services provider (such as Royal Mail in the United Kingdom) or
(ii)    also a private postal operator (such as TNT Post)?
2.    In the circumstances of the present case, is Article 13A(1)(a) of the Sixth VAT Directive (now Article 132(1)(a) of Directive 2006/112) to be interpreted as requiring or permitting a Member State to exempt all postal services provided by “the public postal services”?
3.    If Member States are required or permitted to exempt some, but not all, of the services provided by “the public postal services”, by reference to which criteria are those services”, by reference to which criteria are those services to be identified?

AG Opinion

(1)      ‘Public postal services’ within the meaning of Article 13A(1)(a) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment are the postal service providers which guarantee the universal service. Application of the exemption does not require that certain universal services be reserved to the provider(s).

(2)      Under Article 13A(1)(a) of the Sixth Directive, only those services of a public postal service which that service also provides as such, that is, the universal services provided in the public interest, are exempt from VAT. By contrast, those services which are provided on individually negotiated terms and are not subject to the requirements of the universal service are not exempt.


Decision

1.      The concept of ‘public postal services’ in Article 13A(1)(a) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, must be interpreted to cover operators, whether they are public or private, who undertake to provide, in a Member State, all or part of the universal postal service, as defined in Article 3 of Directive 97/67/EC of the European Parliament and of the Council of 15 December 1997 on common rules for the development of the internal market of Community postal services and the improvement of quality of service, as amended by Directive 2002/39/EC of the European Parliament and of the Council of 10 June 2002.

2.      The exemption provided for in Article 13A(1)(a) of Sixth Directive 77/388 applies to the supply by the public postal services acting as such – that is, in their capacity as an operator who undertakes to provide all or part of the universal postal service in a Member State – of services other than passenger transport and telecommunications services, and the supply of goods incidental thereto. It does not apply to supplies of services or of goods incidental thereto for which the terms have been individually negotiated.


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