Edited by Michael A. Crew and Paul R. Kleindorfer
Chapter 19: Impact of VAT Exemptions in the Postal Sector on Competition and Welfare
Helmut Dietl†, Christian Jaag‡, Markus Lang§, Martin Lutzenberger¶ and Urs Trinkner†† 1 INTRODUCTION In most member states of the European Union (EU), universal postal services provided by the incumbent operator are exempt from value-added tax (VAT) on the grounds that they are the ‘public postal service’. Other postal service providers have to charge VAT at the standard rate. In the United Kingdom, TNT legally challenged this interpretation of the VAT Directive’1 and Royal Mail’s VAT exemption as not being in accordance with EU law. TNT argued that where the market is liberalized, VAT should be charged on all services to avoid market distortion. This position had already been taken by some European governments, including those of Finland, Sweden and Switzerland. The European Court of Justice (ECJ) ruled that Royal Mail, as the operator providing the public postal service, was the only postal service provider in the UK that was eligible for the VAT exemption. However, this exemption does not apply to contracts that had been individually negotiated by businesses with Royal Mail, as such an exemption would distort competition. The ECJ’s decision is binding on all member states. The significance of VAT exemptions to the emergence of competition in liberalized postal markets has not been explicitly analyzed and discussed: while De Donder et al. (2009) focus on the pricing and welfare implications of changing a postal operator’s VAT status, Dieke and Elixmann (2005) try to quantify the effect of VAT exemptions for postal operators on government tax revenue. Crew et...
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