TNT Post UK can challenge Royal Mail’s VAT exemptions, says judge

TNT Post UK has won the chance for a Judicial Review over Royal Mail’s exemptions from charging business customers VAT. A High Court Judge decided last week that the subsidiary of Dutch postal service PostNL should be allowed to challenge the protections that Royal Mail has against the 20% sales tax.

The challenge refers to both the VAT exemption Royal Mail has on “Downstream Access” mail and when providing end-to-end delivery services.

Mr Justice Kenneth Parker had previously rejected TNT Post UK’s bid for a challenge to the rules, but decided last Monday that after the company came back with a fresh request and additional information, there was a “compelling public interest” in the claim.

The full ruling is now available here.

The Judge said the case could ultimately be referred to the European Court of Justice for a ruling, suggesting there were sufficient implications on postal market liberalisation in other EU Countries.

“Given the arguable ambiguity in the judgment, legal certainty might in the longer term be achieved only by eliciting the view of the Court on this specific issue,” said the Judge.

“The relevant issue may well arise in other Member States as postal services becoming increasingly liberalised and new entrants need access to the final delivery facilities of the universal service provider.”

Exemptions

TNT Post UK is challenging the UK tax authorities, with Royal Mail as an interested party.

It said that while EU law may allow VAT exemptions to support the universal service, a mail service is not necessary part of the universal service just because it is provided by the universal service operator.

Contracts negotiated with individual business customers are not public postal services, the company argued, and therefore should not be exempt from VAT.

TNT Post UK currently provides most of its mail services as a Downstream Access operator, collecting and sorting mail from businesses before handing it to Royal Mail for final delivery. The system sees Royal Mail keeping around 80% of revenues from the overall mail service as final mile carrier.

TNT Post wants to run a full end-to-end delivery service in the UK, which would mean it would not hand over any of its mail revenue to Royal Mail. However, although it is currently running delivery trials in the West London area at the moment, the company says it cannot compete against Royal Mail and its VAT exemption on a nationwide basis.

The UK tax authorities and Royal Mail argue that EU law does not state that VAT exemptions are restricted only to those services expressly within the description of universal postal services.

They also argued that providing access to Royal Mail’s last mile network effectively made it a service of public interest, and that access services are regulated.

“Arguable”

Mr Justice Parker said last week that with the additional information, he no longer believed Royal Mail’s case for VAT exemptions was as “clear cut” as he had when TNT Post made its first legal challenge on the matter.

The Judge appeared to frown on the prospect of extending VAT exemptions to the kind of collecting and sorting (upstream activities) carried out by Downstream Access operators, suggesting it could discourage operators like TNT from providing their own final mile delivery services, hindering competition in the market.

He said keeping VAT on upstream services could mean postal rates on mailers are higher, but could also allow smaller postal operators to survive in the market if they don’t have the resources to run their own final mail delivery services against the likes of TNT.

The Judge concluded that TNT Post at least had a case that was “arguable”, and that therefore the matter should be subject to further review.

“I would invite the parties carefully to consider this judgment with a view to exploring the best way forward,” he said.

Both parties are now considering their positions, but a hearing on Royal Mail’s VAT exemption could be held as soon as early next year.

A spokesperson for TNT Post UK told Post&Parcel this morning: “We welcome the decision in our long running campaign for the equalisation of VAT in the postal sector in the UK. We are now reviewing our options to take the case forward.”