2 Value added tax on postal services
| (a)
(24538)
9060/03
COM(03) 234
(b)
(25812)
11338/04
COM(04) 468
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Draft Council Directive amending Directive 77/388/EEC as regards value added tax on services provided in the postal sector
Amended draft Council Directive amending Directive 77/388/EEC as regards value added tax on services provided in the postal sector
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| Legal base | Article 93 EC; consultation; unanimity
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| Document originated | (b) 8 July 2004
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| Deposited in Parliament | (b) 13 July 2004
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| Department | HM Customs and Excise
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| Basis of consideration | EM of 10 August 2004
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| Previous Committee Report | (a) HC 63-xxxiv (2002-03), para 3 (22 October 2003)
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| To be discussed in Council | No date known
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| Committee's assessment | Politically important
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| Committee's decision | (a) Cleared
(b) Not cleared; further information awaited
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Background
2.1 Directive 77/388/EEC —
the Sixth VAT Directive —
provides that supplies made by "public postal services"
are exempt from value added tax (VAT), as are supplies of postage
stamps sold at face value for use for postal services. The present
VAT rules mean that the postal services of the Royal Mail, as
the public postal service provider, are exempt (except for post
to or from destinations outside the EC, which is zero-rated).
VAT is chargeable on services provided by other postal operators.
2.2 In October 2003 we last considered document (a),
which is a draft Directive to amend the Sixth VAT Directive so
as to:
- remove the VAT exemption for
public postal services and postage stamps;
- allow an optional reduced rate of VAT for postal
services (excluding express services) relating to addressed letters
and packets no heavier than two kilograms. This would let Member
States, if they so choose, mitigate the impact on prices of removing
the existing exemption;
- amend place of supply and VAT liability rules
for postal services (excluding express services) relating to addressed
letters and packages no heavier than two kilograms and destined
for countries outside the EC. This is to avoid difficulties that
could arise for postal operators from the existing place of supply
rules, which would result in postal services relating to items
for delivery outside the EC being taxed at the zero rate and all
other items being taxed (under the Commission's proposal) at the
standard or optional reduced rate;
- allow Member States to have a special tax accounting
scheme for postal operators. Such schemes would address potential
control and accounting difficulties for postal operators providing,
under the Commission's proposal, a combination of services subject
to standard, reduced and zero VAT rates; and
- provide for taxation of terminal dues —
that is, payments received by postal operators, as sub-contractors,
for delivery of items received from a postal operator outside
the Member State concerned.
2.3 We did not clear the document, pending receipt
of information on:
- developments in any negotiations
that might take place; and
- the outcome of any continuing or formal consultations.
The new document
2.4 In March 2004 the European Parliament asked the
Commission to make 12 amendments to the draft Directive. The Commission
has accepted four of the suggestions and the amended draft Directive
reflects these. The main modifications proposed by the Commission
are:
- the proposed special place
of supply arrangements and optional reduced rate of VAT would
apply for non-express addressed mail items that are not heavier
than ten kilograms, rather than the two kilograms in the original
proposal, so that the volume of items that would be eligible for
the special place of supply rule and the optional reduced rate
would be increased. Ten kilograms is suggested as a natural weight
borderline which is already established within the postal sector
in connection with Member States' responsibilities to ensure the
provision of a universal postal service; and
- Member States would not be required to implement
any new Directive until 1 January 2007. This deadline recognises
that postal operators would need time to adapt their systems to
enable them to implement any VAT changes.
The Government's view
2.5 The Paymaster General (Dawn Primarolo) says:
"The amendments to the proposal do not alter
the fact that the Commission proposal would impose VAT on postal
services. The Government is opposed to VAT on stamps, and will
continue to make this clear in negotiations on the proposal."
The Minister adds:
"The Government will continue to maintain its
present regular, flexible and open-ended dialogue with affected
parties, including postal operators, customers and the postal
regulator."
Conclusion
2.6 We are grateful to the Minister for this progress
report. We note that the original document, (a), is now redundant
and clear it.
2.7 As with the earlier draft we will hold the
amended draft Directive (document (b)) under scrutiny pending
information on:
- developments in any negotiations
that might take place; and
- the outcome of any continuing or formal consultations.
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