20000328EU looks at extending VAT to some postal services

BRUSSELS: The European Commission is considering proposals which would require monopoly postal operators to impose Value Added Tax on certain services in which they compete with private companies, a spokesman said on Monday.

The idea will form part of an overall review of the current VAT regime in the European Union, due to be unveiled in April or May, and is aimed at reducing distortions of competition when state monopolies compete with commercial firms.

"At the moment, VAT doesn't apply to postal services and we're not suggesting imposing it on all postal services," said spokesman Jonathan Todd.

"It's specifically to address the distortion which occurs because post offices don't levy VAT in some areas where private operators have to such as parcel services."

He said the plans would not apply to services reserved for incumbent national post offices, notably the delivery of letters weighing less than 350 grammes: "It won't penalise grannies sending their Christmas cards."

The Commission, the EU's executive, will on Wednesday hold a discussion on the broader issue of the bloc's future VAT regime, before a policy paper is published later in the year.

The Commission has, for the time-being, given up hope of moving to its preferred system under which VAT would be charged only in the country of origin of goods and services.

Separately, the Commission is getting close to finalising its plans for a further liberalisation of postal services, Todd said, with proposals due before the summer.

Europe has already opened express mail and postal items weighing more than 350 grammes to full competition. Courier firms hope the next step will liberalise direct mail and cross-border mail and reduce to 50 grammes items in the so-called "reserved area".

National post offices are resisting lowering the weight limit to 50g, and have suggested 150g as a compromise.

"We think this is probably not low enough," Todd said.

He said the Commission would soon write to governments to ask if their national post operators had obeyed a clause in the existing postal liberalisation legislation requiring them by February 2000 to publish separate accounts for the reserved and non-reserved parts of their business.

"We'd like to think they've done so. On the basis of what they tell us, we'll examine whether cross-subsidisation is going on," Todd explained.

UPS alleges that Deutsche Post has financed an aggressive spree of acquisitions through profits from its monopoly letter delivery business, which would be illegal under EU state subsidy rules.-Reuters