3 Value added tax on postal services
| (25812)
11338/04
COM(04) 468
| 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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| Department | HM Treasury
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| Basis of consideration |
Minister's letter of 14 December 2009
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| Previous Committee Report
| HC 42-xxx (2003-04), chapter 2 (9 September 2004) and HC 34-xl (2005-06), chapter 6 (1 November 2006)
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| To be discussed in Council
| Not known |
| Committee's assessment |
Politically important |
| Committee's decision |
Not cleared, further information awaited
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Background
3.1 The 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 Community,
which is zero-rated). VAT is chargeable on services provided by
other postal operators.
3.2 In May 2003 the Commission presented a draft
Directive to amend the VAT Directive as it relates to postal services.
In July 2004 the Commission presented this amended draft Directive,
taking into account four, out of 12, amendments proposed by the
European Parliament. The amended draft Directive would:
- remove the VAT exemption for
public postal services and postage stamps;
- allow an optional reduced rate, of not less than
5%, of VAT for postal services (excluding express services) relating
to addressed letters and packets no heavier than ten 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 ten kilograms and destined
for countries outside the Community. Ten kilograms was suggested
as a natural weight borderline which was already established within
the postal sector in connection with Member States' responsibilities
to ensure the provision of a universal postal service;
- 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;
- 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; and
- require Member States to implement any new Directive
by 1 January 2007 — the (extended) deadline was to recognise
that postal operators would need time to adapt their systems to
enable them to implement any VAT changes.
3.3 In September 2004 the previous Committee cleared
the original proposal, since it had been overtaken, but did not
clear the amended draft Directive. In keeping the proposal under
scrutiny it noted that the Government had told it that:
"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."
and that:
"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."
The Committee said that the proposal would stay under
scrutiny pending receipt of information on:
- developments in any negotiations
that might take place; and
- the outcome of any continuing or formal consultations.
3.4 In November 2006 we heard that:
- although there had been working
group discussions of the proposal in 2004, there had been no agreement
among Member States, there had been no move by successive Presidencies
to continue discussions since that time and there was no indication
that holders of Presidencies up until June 2007 intended to find
time for discussions;
- the Commission had recently written separately
to the UK, Sweden and Germany about the scope of the present mandatory
exemption for supplies made by the public postal services, in
particular the exemption for services other than those necessary
for the discharge of the universal service obligation, or where
special terms and conditions were offered to customers;
- the Government was confident that its current
application of exemption to all postal services provided by the
public postal service was correct in law and had replied to the
Commission to this effect;
- there had been a request for a judicial review
by a domestic mail operator in relation to a number of VAT issues,
including the scope of the exemption and the Government had yet
to receive a date on when this application would be heard; and
- the Government continued to be opposed to VAT
on stamps — and therefore to the Commission proposal as
redrafted, and remained in regular contact with interested parties,
including postal operators and the postal regulator about interaction
between VAT rules, development of competition and continued delivery
of the universal postal service.
We noted that, despite the lack of progress on the
amended draft Directive, the Commission had not withdrawn the
proposal, said that the document would therefore remain under
scrutiny and asked to be kept updated as to developments on the
draft Directive and also, in so far as they relate to the Commission
proposal, on the Commission's enquiry about the scope of the present
exemption and on the judicial review requested on VAT issues.[3]
The Minister's letter
3.5 The Financial Secretary to the Treasury (Mr Stephen
Timms) writes now to report that, as a result of recent European
Court of Justice case law, the amended draft Directive received
renewed interest under the Swedish Presidency, having last been
discussed by officials in July 2004. The Minister continues that:
- in April 2009 the European
Court of Justice decision in the matter of TNT Post (UK) Ltd,
C-357/07[4] confirmed that
VAT exemption applied to the universal postal service provided
by Royal Mail, even though services being provided by other operators
are subject to VAT;
- the Court also confirmed that VAT exemption does
not extend to supplies of services for which terms have been individually
negotiated;
- the decision caused a few Member States, including
Sweden, which tax such postal services, difficulties;
- it also meant that some postal services supplied
by Royal Mail, which have, in the past, been treated as exempt
will become liable to VAT;
- to address this HM Revenue and Customs will implement
some changes to domestic VAT legislation, as described in Business
Brief 64/09;[5]
- the Swedish Presidency scheduled a discussion
on the amended draft Directive by officials in July 2009, but
failed to persuade the majority of Member States that the proposal
warranted further discussion;
- it therefore took the matter to an ECOFIN Council
meeting on 2 December 2009, when Ministers agreed to ask officials
to examine the interaction between the VAT Directive and the Postal
Liberalisation Directive and to report back no later than December
2010;
- the extent to which the proposal will be discussed
over the course of 2010 is unclear; and
- any change would have to be agreed unanimously,
many Member States, including the UK, strongly object to VAT on
public postal services and, importantly, the two Presidencies
in waiting, Spain and Belgium, have not indicated that this is
a priority for them.
Conclusion
3.6 We are grateful to the Minister for his account
of where matters stand on this proposal. We note that there seems
little prospect that the issue will be carried forward soon, which,
given the unacceptability of the core of the proposal, is no bad
thing. However, the document remains under scrutiny and we would
welcome a further report from the Government, if there is any
change or development in relation to consideration of the proposal.
3.7 In view of the potential implications for
Royal Mail we particularly draw the attention of the Business,
Innovation and Skills Committee to where matters stand on this
proposal.
3 See headnote. Back
4
See http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62007J0357:EN:HTML.
Back
5
See http://www.hmrc.gov.uk/briefs/vat/brief6409.htm. Back
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