The existence of different VAT regimes for postal services, differing data protection regulation among the Member States, non-optimal transport networks and competition
273 Regulation (EC) No 861/2007, OJ L 199, 31.7.2007, page 1.
issues may also be creating delivery-related barriers to the development of cross-border e-commerce. We discuss these below.
4.10.1 VAT regimes
VAT is an indirect tax charged on the additional value of each transaction. A business pays VAT on its purchases and charges VAT on its sales, settling with the tax authorities for the difference between the two. By its nature, the cost of the tax is borne by the end consumer.
Article 13 of the Sixth VAT Directive of the EC274 included national postal services among the goods which Member States were required to exempt from VAT. Article 132 of the 2006 EC VAT Directive (consolidation directive),275 approved in November 2006, states that “the supply by the national postal services of services other than passenger transport and telecommunications services, and the supply of goods incidental thereto”, which are public interest activities, should be VAT exempt. The VAT exemption did not extend to postal services provided by other operators, including competitors of the national postal operators operating in liberalised markets, and integrators.
Different Member States took a different view of which postal services were public interest activities: all the services supplied by the national postal operator (the UK), most of them (for example, Germany), the USO products, or none (Sweden).
In July 2007 the EC proposed taking infringement proceedings against the UK, Germany, and Sweden:
―[The Commission] is aware that these three Member States are not the only ones where similar problems exist and regards these as test cases which show in stark relief the devastating effects non-harmonised application of VAT rules has for the internal market … Perhaps the single most important obstacle to achieve effective competition in this sector is the VAT exemption as applied in several Member States. In transposing article 132 of the VAT Directive ... those Member States have exempted from VAT all (the UK) or most (Germany) postal services provided by their former postal monopolies. Other postal operators are required to charge VAT on their services.
274 Directive 77/388/EEC, 1977.
275 Directive (2006/112/EC).
Paradoxically, some of the operators (former monopolies) who benefit from this tax advantage at home are now expanding across Europe and facing and complaining about unequal tax treatment in these new markets.
The Commission is arguing that in the context of competitive postal markets, different tax liabilities are bound to distort competition and can only be justified as regards the strict discharge of the universal service obligation. Where for commercial reasons – namely to fend off competition from other operators – former monopolies offer to some high volume clients pricing and quality conditions which are not available to the general public, their supplies should be subject to the same tax liability as their competitors …
Contrary to the United Kingdom and Germany, Sweden does not exempt postal services. All operators including the one entrusted with the provision of the universal service - Posten AB - must charge VAT for all services. While in so doing Sweden has ensured that VAT does not distort competition, it has nevertheless failed to apply an exemption which remains in Community legislation and must be applied in a harmonised manner across the
Community.‖276
In addition, TNT made a request for judicial review of the way the UK had applied the scope of this VAT exemption, arguing that certain services Royal Mail provided could not be regarded as „public postal services‟, and should be liable to VAT. These were the bulk mail services included in the UK‟s USO.
In April 2009 the European Court of Justice confirmed that the EU-wide VAT exemption only applied to USO products as provided by designated USPs. However, it did not extend to USO products for which terms had been individually negotiated, as TNT had argued.277 This includes negotiated contracts with large senders that cover bulk mail USO products, if these are outside the USO (for example, bulk packets and parcels).
As a result of these decisions individual, not negotiated packets and parcels (below ten kilograms in weight) that are USO products are VAT exempt, whereas VAT has to be paid on all other postal products, regardless of who supplies them.
However, the scope of the universal service is different between different countries, as well as for cross-border parcel products, as we have seen above. Similar products may be subject to different VAT regimes. For example, although all Member States have an obligation to safeguard USO, a product that is defined as a USO product in one country may be defined as non-USO in another country. As a result, differing
276 European Commission press notice IP/07/1164, 24 July 2007.
277 TNT Post UK Ltd v HMRC, C-357/07, 23 April 2009.
VAT treatments may apply to the delivery of equal parcels containing the same good (for example, a dress) originating from different Member States and delivered at the same address. The resulting difference in delivery costs may create distortions in the competitiveness of traders in different Member States although we hasten to say that this provision applies to USO products, which are only bought by small, infrequent senders.
Moreover, as of 1 January 2010278 most services sold to business customers have to be treated as if they are supplied in the country where the buyer is established, and the business customer will account for VAT under the reverse charge mechanism.
However, services provided to non-business customers will still generally be liable to VAT in the country of the seller. Member States are in the process of transposing these provisions into their national legislation.
For example, an Italian customer buying widgets online from a French company‟s website will have to pay French VAT if he is an end consumer, and Italian VAT if he is a business customer.
These new provisions result in differing VAT treatment of inbound parcel flows. The termination rates that postal operators pay to each other will be affected, with the potential of creating market distortions: there may be incentives for delocation and remailing of cross-border parcels, whereby postal operators in some Member States would be bypassed in order to avoid VAT payments while cross-border subsidiaries of national postal operators may be advantaged. It is however too early to assess whether these phenomena are taking place. Moreover, currently the lack of information (especially volume data) is such that no assessment is possible.
4.10.2 Data and consumer protection
Differences between the levels of data protection in Member States can impact on the levels of cross-border e-commerce (and thus on the amount of postal flows). Data protection concerns arise with the use of internet based booking and purchasing of postal services. This not only affects business customers, that have online accounts with national postal operators, integrators or consolidators, but it increasingly affects end users who use parcel brokers.
278 Directive 2008/8/EC, VAT Package 2010.
Users of postal services want to know that any information about them that is collected is used purely to perform or improve the services that the user is buying.
They want to know that none of the information they disclose is passed on or sold for commercial purposes to third parties, or used by the supplier itself in ways that were not authorised by them. Moreover, they want to have control of any information that is held on them and want to be informed if any breaches occur.
The EU Data Protection Directive279 addresses these issues by regulating how personal data are processed: personal data should be processed only if certain conditions are met: transparency, legitimate purpose and proportionality. In particular, the transparency requirement ensures that personal data can only be processed under these conditions: when the individual has given explicit consent; when processing is needed to enact a contract or to comply with legal obligations; when processing is needed to protect the vital interests of the data subject, or for reasons of public interest. The Directive, approved in 1995 and transposed into the legislation of all the Member States, dealt with electronic and non-electronic data.
The EC is preparing reforms to the Data Protection Directive, which are expected to be presented in January 2012. The reforms are aimed at giving more control to individuals over the information that is held on them, and the new Directive is expected to require that consumers give explicit consent before any data held on them be used.280
We believe that data protection issues are less important for delivery activities that they are for other aspects of e-commerce transactions (payment details or the storage and use of personal data for marketing purposes). However, the development of stricter pan-EU data protection provisions will have a positive impact in the delivery market if it brings about an increase in trust and subsequently an increase in cross-border e-commerce.
The same is true for the enactment of stricter consumer protection laws. On 11 October 2011 the EU Council of Ministers approved the Consumer Rights Directive,281
279 Directive 95/46/EC.
280 http://www.theregister.co.uk/2011/11/08/eu_new_data_protection_proposals/ .
281 See Press Release, Memo/11/ 675, Brussels 10 October 2011. Available at:
http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/11/675&type=HTML.
which includes regulations improving consumer protection. Of particular importance to the delivery markets are the provisions about withdrawal rights and the requirement that vendors make available to consumers a “model withdrawal form”, contact details and an address for returning unwanted purchases. We have discussed in sections 3.6.2 and 3.6.3 how there is widespread ignorance about consumer rights, both by consumers and vendors (especially small ones). This Directive, once implemented, has the potential to increase consumer confidence and cross-border distance sales:
knowing that one can withdraw from a distance purchase, and knowing the process for returning goods are important when deciding whether or not to shop online.
The provisions contained in the Consumer Right Directive are capable to increase not only border e-commerce (and related parcel delivery flows), but also cross-border parcel returns. In so far as individual customers returning the goods may have to pay for the returns,282 price and quality of service of cross-border consumer parcel products (i.e. parcels sold to small, infrequent senders, which could or could not be part of the USO) may become an even more important barrier to cross-border e-commerce: high prices and ignorance about the quality of service for cross-border returns may in fact prevent consumers from buying cross-border in the first place. We discuss cross-border prices for individual customers in Chapter 5.
4.10.3 Transport policy
In the broadest context, European transport policy needs to cover almost 500 million citizens.283 The policy has to bring together 27 Member States that may have national railway monopolies with different technical standard, as well as individual standards for road, sea and air. These differences are costly to overcome, and represent a barrier to cross-border parcel delivery, which relies on large volumes of items being sent between Member States.
The lack of a single, efficient logistical transport system across the EU-27 has hindered the expansion of cross-border deliveries, as stated in the Monti Report:284
282 The Directive does not require vendors to do so.
283 European Commission Staff Working Document Accompanying the White Paper: Roadmap to a Single European Transport Area – Towards a competitive and resource efficient transport system (2011), p. 7.
284 Mario Monti: A New Strategy for the Single Market: At the Service of Europe‟s Economy and Society:
Report to the President of the European Commission: Jose Manuel Barroso (9 May 2010).
―Reaping the full benefits of a single market for goods depends on the existence of a seamless, flexible and efficient logistics and transport system. Yet, EU transport policy took off late compared to its initial recognition in the Treaty and has developed unevenly across transport modes. The resulting fragmentation is increasingly perceived as an obstacle to free movement. Administrative and technical barriers results in "bottlenecks" to mobility within Europe. There is simply no single market for maritime transport, as customs formalities for ships travelling between two European ports remain subject to custom formalities identical to the ones foreseen for international maritime transport. In the rail sector, track gauges, energy supply and signalling systems differ from one Member State to another as an inheritance from the times in which railways were still national monopolies.
This hinders cross-border circulation of trains and increases the cost of rolling stock used in international operations, which has to be equipped with multiple systems.
Furthermore, the market for rail freight services is still not yet functioning due to incorrect or incomplete transposition of Community law by Member States. In road transport, national markets have only recently opened to ―cabotage‖.
Europe needs a step change towards multi-modal transport, but legal, administrative and technical barriers are multiplied. There is no single transport document, but different modes of transport require different documentation. Liability rules also differ. A single transport document (hopefully electronic) and a single liability system would increase legal certainty and decrease significantly costs for businesses and citizens. The creation of a modern single market requires tackling the lack of interoperability and the infrastructure gaps that reduce the efficiency and weaken the global competitiveness of the EU logistics industry."
These „bottlenecks‟ to mobility and the lack of transport inter-modality have a negative impact on the quality of postal services and on the costs of postal operators, express carriers and logistic companies. The recent White Paper published by the European Commission on the topic contains a number of initiatives (and related timing) aimed at removing these barriers to a single EU transport market.285
Road transport is the mode of choice for the delivery of most cross-border postal items.286 Road transport relies heavily on high carbon-footprint fossil fuels, whose prices are likely to increase significantly in the near future as oil stocks fall. However, as fuel prices rise, alternatives to cross-border road transport may still be unattractive because investment in rail and sea networks has not been sufficient to address the bottlenecks in multimodal transport.287
285 EC White Paper: Roadmap to a Single European Transport Area – Towards a competitive and resource efficient transport system, 28 March 2011, COM(2011) 144 final.
286 This is clearly shown by responses to our national postal operator questionnaires.
287 EC Staff Working Document Accompanying the White Paper: Roadmap to a Single European Transport Area – Towards a competitive and resource efficient transport system (2011).
Moreover, legislation passed in 2007 to open up the rail freight transport market has been implemented slowly and incompletely in most Member States, with inadequate enforcement: lack of competition is still hindering service efficiency and quality.288
Parcel and postal operators thus have the choice between increasing costs for road transport, or inefficiencies in alternative modes, resulting in higher prices for end-consumers than there would be if the EU-wide transport system was more efficient.
It has to be acknowledged that merely liberalizing markets to increase competition would not remove all barriers: statistics from the European Commission Mobility and Transport division show that there are currently a large number of different standards involved in intra-EU transport, which can hinder delivery of parcels through inefficiencies. Research from the European Railway Agency finds that “Each EU country has its own safety certifications for train rolling stock that represent a major barrier to expanding international passenger and freight services. Estimated cost of each national recertification is between €1-4 million, and can take up to two years.”289
For example, the Thalys high-speed train running through France, Belgium, Germany and the Netherlands, “has to adapt to seven different signalling systems. The EU currently uses seven gauge sizes and seven types of electric currents (with different voltages and frequencies, and alternating or direct current, etc).‖290
Clearly this number of requirements makes cross-border rail transport significantly more expensive and slower than it would be under a harmonised transport system, and is likely to discourage cross-border parcel operators, not least because of the negative impact on delivery speed.
Until a seamless transport system is in place, road transport will remain the mode of choice for parcel deliveries due to cost and efficiency considerations. Intra-EU road transport is however also plagued by excessive administrative costs arising from lack of harmonisation: “international hauliers need in their vehicle the Eurovignette, 5
288 EC Staff Working Document Accompanying the White Paper: Roadmap to a Single European Transport Area – Towards a competitive and resource efficient transport system (2011), page 10.
289 European Railway Agency, mentioned on European Commission Mobility & Transport website - http://ec.europa.eu/transport/strategies/facts-and-figures/all-themes/index_en.htm.
290 ERTMS and Gauges and Currents: Energy and Transport in Europe; Statistical Pocketbook 2010, http://ec.europa.eu/transport/strategies/facts-and-figures/all-themes/index_en.htm.
different national vignettes and 8 different tags and tolling contracts if they wish to drive on all European tolled roads without stopping at tollbooths.”291
The first step toward an harmonised EU transport systems has to be to remove the regulatory and administrative barriers that characterise the EU unimodal transport systems. For example, EU legislation is being developed to unify standards in rail freight.292
However, to be fully efficient, the EU transport system must be integrated, that is multimodal. An integrated multimodal system would allow deliveries (including parcel deliveries) to be carried out in the most cost-effective way for any given quality standard; it would also provide users with a wider choice of suppliers, increasing competition and lowering transport costs. 293 Unfortunately,
―The achievement of a fully integrated transport system is delayed today by a number of remaining regulatory and market failures. Regulatory barriers to market entry, technical incompatibilities between modes, burdensome administrative procedures or indeed imperfect and outdated legislation are the biggest problems.‖294
Whilst technical incompatibilities will be slower to address since they require consistent financial investments, administrative barriers are easier to remove - in particular those related to information requirements:
―Currently, different modes of transport use different transport documents (CMR for road, Bill of Lading for maritime, etc…), a situation which creates administrative costs for multimodal transport and puts it in an unfavourable position in comparison to single mode transport.‖295
Among other initiatives contained in the EC White Paper, the creation of a single transport document296 (preferably electronic) will help removing these barriers,
291 See http://ec.europa.eu/transport/strategies/facts-and-figures/all-themes/index_en.htm.
292 Draft EC Decision D011193/02 http://register.consilium.europa.eu/pdf/en/11/st05/st05156.en11.pdf.
293 EC Staff Working Document Accompanying the White Paper: Roadmap to a Single European Transport Area – Towards a competitive and resource efficient transport system (2011), p. 29.
294 EC Staff Working Document Accompanying the White Paper: Roadmap to a Single European Transport Area – Towards a competitive and resource efficient transport system (2011), p. 36.
295 EC Staff Working Document Accompanying the White Paper: Roadmap to a Single European Transport
295 EC Staff Working Document Accompanying the White Paper: Roadmap to a Single European Transport