Advances in Regulatory Economics series
Edited by Michael A. Crew and Paul R. Kleindorfer
Chapter 18: The Economics of Postal Payment Channels and EU Postal VAT
Tim Walsh† 1 INTRODUCTION For over thirty years the application of the European Union’s value-added tax (VAT) rules to the postal sector has been problematic. Since its formalization in 1977 the nature and scope of the postal VAT exemption has been a source of textual dispute, litigation and market uncertainty. Attempts to apply ill-defined and pre-existing VAT rules to the evolving market have been driven largely by judicial action, but the necessary degree of legal certainty and harmonization required to underpin a fully functioning EU-wide postal services market has not yet been achieved. The case for removing an incumbent’s VAT exemption is typically based on efficiency and competition grounds. National postal operators would henceforth face incentives to outsource services currently provided in-house and entrants would have equal treatment in respect of VAT particularly in relation to the estimated 50 percent of volumes emanating from VAT-exempt customers such as in the financial services, charity and government sectors. The evidence on the impact of VAT on postal services is, however, mixed. The IBFD (2004) concluded that competition would be least distorted ‘the narrower the scope of the exemption’. Dietl et al. (Chapter 19, this volume, p. 267), found that abolishing the incumbent’s VAT exemption ‘levels the playing field . . . it slightly decreases overall welfare’. This chapter reviews one aspect of the efficiency consequences of postal VAT for operators and their customers in the context of the European Court of Justice (ECJ) determination in the April 2009 case between TNT UK and the UK...