Germany - Berlin ponders mail VAT move

The German government is considering exempting private-sector postal operators from value-added tax in order to improve their competitive position with Deutsche Post, the former monopoly, three months before the liberalisation of the German letters market.

A spokesman for chancellor Angela Merkel told the FT that Berlin was reviewing ways to “correct competitive distortions” in the postal market. “The review includes the different tax treatment of affected companies.”

Currently, only Deutsche Post is exempted from VAT in its letters business on the ground that it provides a universal public service – a mandate that includes the obligation to serve remote and thinly populated parts of the country.

Competitors, including Pin, a joint venture created by large publishing houses, and the Netherlands’ TNT, have long complained that the exemption gave Deutsche Post, which controls 91 per cent of the German letters market, an unfair competitive advantage.

Their complaints grew louder this summer after the government decided to impose a minimum wage on postal services. The government plans to use a 1996 law that allows it to declare a wage deal between the trade unions and employers in any sector as legally binding for all companies in this sector.

Days after the announcement, Deutsche Post struck a deal with the Verdi services sector union setting hourly pay for its employees at between €8 and €9.80, so far above the wages paid by most of its private sector competitors.

Critics argued that the minimum wage decision enabled Deutsche Post to dictate pay for the entire sector, thus robbing its competitors of their cost advantage. This is possible because the former monopoly accounts for the vast majority of the country’s postal workers, which means its wage deal with Verdi can be legally considered the benchmark for the entire sector.

Realising that the minimum wage decision could backfire against private operators, Ms Merkel summoned Klaus Zumwinkel, Deutsch Post’s chief executive, to the chancellery to press for a renegotiation of the pay deal. Yet Verdi has categorically refused new discussions.

By extending the VAT exemption to the entire postal sector - or be making Deutsche Post subject to VAT, another possible alternative - the government would thus be correcting the anti competitive fallout of its minimum wage decision.

A spokesman for Laszlo Kovacs, the European tax commissioner, said VAT exemption for universal postal services were currently allowed under EU legislation dating back to an era when most operators were in state hands.

The Commission has tried and failed to impose equal tax treatment for public and private sector operators since 2003 and is now seeking a European Court of Justice ruling to clarify the issue.

Germany will open up its letters market to competition from next January, two years before the European Court of Justice ruling to clarify the issue.

Germany will open up its letters market to competition form next January, two years before the Europe wide deadline for full liberalisation. The state still holds 30.6 per cent of Deutsche Post via the KfW public-sector development bank