VATupdate

Flashback on ECJ Cases – C-114/14 (Commission v Sweden) – Exemption for public postal services

On April 21, 2015, the ECJ issued its decision in the case C-114/14 (Commission v Sweden).

Context: Failure of a Member State to fulfil obligations — Value added tax — Sixth Directive 77/388/EEC — Directive 2006/112/EC — Articles 132(1)(a) and 135(1)(h) — Exemptions — Public postal services — Postage stamps — Directive 97/67/CE


Article in the EU VAT Directive

Articles 132(1)(a) , 135(1)(h) of the EU VAT Directive 2006/112/EC.

Article 132 (Exemption – Public Postan Services)
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

Article 135
1. Member States shall exempt the following transactions:
(h) the supply at face value of postage stamps valid for use for postal services within their respective territory, fiscal stamps and other similar stamps;


Facts

  • The Commission submits that the Kingdom of Sweden should exempt from VAT the supplies of services, other than passenger transport and telecommunications services, and incidental supplies of goods which Posten AB has to supply in accordance with Directive 97/67.
  • It submits that supplies of services by a universal service provider in accordance with its obligations under Articles 3 to 6 of Directive 97/67 fall within the definition of ‘the supply by the public postal services of services’ within the meaning of Article 132(1)(a) of Directive 2006/112.
  • It observes in this respect that Posten AB, a private law company, was designated as a universal service provider in Sweden. In support of that assertion, the Commission relies on the dispute between Posten AB and the Swedish postal and telecommunications authorities concerning their decision to attach to the authorisation for Posten AB to carry on a postal activity conditions relating to its designation as a universal service provider. According to the Commission, it is clear from the judgment of the Kammarrätten i Stockholm (Administrative Court of Appeal, Stockholm) that the operations carried out by Posten AB may be distinguished on that basis from those of other operators in the Swedish market.
  • According to the Commission, the Kingdom of Sweden is required to implement the exemption laid down in Article 132(1)(a) of Directive 2006/112 even if it considers that it can better ensure fiscal neutrality by means other than the exemption. The Commission relies in this respect on the judgment in Commission v Spain (C‑204/03, EU:C:2005:588, paragraph 28).
  • Moreover, the Commission infers from the judgment in TNT Post UK (C‑357/07, EU:C:2009:248) that the VAT exemption in question does not infringe the principle of fiscal neutrality.
  • Finally, it submits that no distortion of competition, even if one did exist, could dispense the Kingdom of Sweden from its obligation to apply the exemption in Article 132(1)(a) of Directive 2006/112, which differs from other provisions of that directive by being unconditional. On the contrary, according to the Commission, it is precisely the existence of a situation in which all the Member States with one exception apply that exemption that may produce distortions of competition in the internal market.
  • The Kingdom of Sweden submits, contrariwise, that to exempt Posten AB from VAT on the basis of the exception for public postal services would be contrary to Directive 2006/112, the provisions of the FEU Treaty on competition, and the objectives of Directive 97/67.
  • It submits that in Sweden some 30 undertakings operate under identical financial conditions in a postal market that was liberalised long ago — even before the accession of the Kingdom of Sweden to the European Union — and no longer has a ‘public postal service’. In particular, Posten AB receives no compensation from the State for its universal service obligations, although this is permitted by the second sentence of Article 7(1) of Directive 97/67.
  • The Kingdom of Sweden argues further that the Swedish market in postal services differs from the British market examined in the judgment in TNT Post UK (C‑357/07, EU:C:2009:248), in that, at the date of delivery of that judgment, numerous public postal services within the European Union were entrusted to public undertakings in a monopoly situation, whereas that is no longer the case since Article 7(1) of Directive 97/67 put an end to the possibility of granting exclusive or special rights in that sector.
  • In those circumstances, the Kingdom of Sweden submits that exempting Posten AB from VAT would amount to giving it an artificial competition/price advantage over its competitors which could go as far as the VAT rate applicable, namely 20%, which would reduce the pressure of competition on the postal market to the detriment of the end consumer. Moreover, such an exemption would increase the price of the outsourced services Posten AB makes use of, since it would no longer be able to deduct input VAT on those purchases, which could thus induce it to reorganise its activities with a view to performing more services itself internally.
  • The Kingdom of Sweden argues, moreover, that VAT has been charged on all postal services in Sweden since 1993 without that system being challenged — except by the banking/insurance sector, precisely because of the VAT exemption it enjoys, which prevents it from deducting input VAT on the postal services it uses.
  • It argues, finally, that the present case concerns principally the functioning of the postal market, and that the rules on exemption from VAT are not necessary for the best possible functioning of that market.


Questions

Declare that, by failing to exempt postal services supplied by the public postal services and the supply of goods incidental thereto from value added tax and by failing to exempt the supply at face value of postage stamps valid for use for postal services within the country from value added tax, the Kingdom of Sweden has failed to fulfil its obligations under Articles 132(1)(a) and 135(1)(h) of Council Directive 2006/112/EC of the European Parliament and of the Council of 28 November 2006 on the common system of value added tax. 1

order the Kingdom of Sweden to pay the costs.

Pleas in law and main arguments

The European Commission has brought an action against the Kingdom of Sweden under Article 258 TFEU on the following grounds.

Article 132(1)(a) of Directive 2006/112 states that the Member States are to exempt the supply by the public postal services of services and the supply of goods incidental thereto from liability for tax.

Article 135(1)(h) of Directive 2006/112 provides that the Member States are to exempt the supply at face value of postage stamps valid for use for postal services from liability for tax.

The Kingdom of Sweden has instructed Posten AB to supply the universal services involving the permanent provision of a postal service of specified quality at all points in their territory at affordable prices for all users in accordance with 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. 2

The Commission is of the opinion that Posten AB, by supplying the universal services described in Article 3 of Directive 97/67, constitutes a public postal service within the meaning of Article 132 of Directive 2006/112.

The Kingdom of Sweden has failed to exempt the postal services supplied by Posten AB and the supply at face value of postage stamps valid for use for postal services within the country from liability for tax.


AG Opinion

None


Decision

1. Declares that, by failing to exempt from value added tax the supply by the public postal services of services other than passenger transport and telecommunications services, and the supply of goods incidental thereto, and the supply at face value of postage stamps valid for use for postal services within national territory, the Kingdom of Sweden has failed to fulfil its obligations under Articles 132(1)(a) and 135(1)(h) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax;

2. Orders the Kingdom of Sweden to pay the costs.


Summary

Public Postal Services – Stamps

By not exempting from VAT the services provided by public postal authorities and associated supplies of goods (with the exception of passenger transport and telecommunications services) and the supplies (at face value) of postage stamps having a postage value within its territory, the Kingdom of Sweden is failed to fulfill its obligations incumbent on this Member State under the VAT Directive. 


Source:


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