German Mail Giant Deutsche Post Sees Tax Exemption Revoked

by Ulrika Lomas, Tax-News.com, Brussels

29 September 2008

In a long-awaited revision of its VAT Act, the German cabinet has this week confirmed its decision to deprive monopoly giant, Deutsche Post, of a tax advantage bestowed until now, by extending the benefit to the mail carriers' competitors from January 1, 2010.

Under a draft law, Germany’s biggest mail delivery company will cease to enjoy current privileges in VAT exemption, in a bid to appease the European Commission’s demands and bring Germany into line with European Union efforts to liberalise the bloc’s postal markets.

Amendments to the Act would force the company to impose the full 19% VAT charge across the majority of its business and to key clients from 2010.

Under the government’s proposal, the charge will be applied to individual and special services. Addressed books, catalogues, newspapers and magazines weighing more than 2kg each, as well as parcels of 10kg or more will incur the charge. Smaller parcels and letters under the stipulated weight will remain exempt.

Provided that Deutsche Post competitors are able to prove that they provide a universal delivery service across Germany, not only in major cities but also in remote villages or on small islands in the North Sea, they will also benefit from the tax break on letters and smaller packages.

The lifting of Deutsche Post’s VAT exemption should save the state an estimated EUR500mn annually. However, the true impact of the revisions is not yet known as the total number of providers fulfilling the conditions for an exemption of VAT is unclear.

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