Germany agrees end of Deutsche Post tax privilege

[TrueBlueTerrier]

http://uk.reuters.com/article/idUKLDE62P12K20100326" onclick="window.open(this.href);return false;

* German upper house of parliament signs legislative change

* Deutsche Post will have to charge commercial customers VAT

* Deutsche Post shares down 1.2 pct, TNT up 1.7 pct

(Recasts, adds comment by TNT, industry association BIEK)

By Sarah Marsh and Maria Sheahan

BERLIN, March 26 (Reuters) - The German government agreed to eliminate some of German mail operator Deutsche Post AG's (DPWGn.DE) exclusive tax privileges, shrinking the edge it has over rivals entering the market.

The Bundesrat upper house of parliament on Friday signed the change in legislation by which Deutsche Post will lose its exclusive right to avoid paying value added tax (VAT) from July 2010, countering speculation among some analysts that the proposals would be rejected.

The Bundestag lower house gave its approval on March 5.

Deutsche Post has traditionally been the only postal service provider in Germany that is exempt from paying VAT, which German media have said gives the group a cost advantage of up to 500 million euros ($666.5 million) a year over rivals.

The justification for the privilege has always been Deutsche Post's obligation to deliver mail to every single household in the country, be it on a tiny North Sea island reachable only by boat or in the alpine regions of Bavaria.

With the change in law, which brings German legislation in line with EU guidelines, other mail service providers will also be allowed to claim the VAT privilege if they deliver mail to households around the country.

But Deutsche Post will have to start charging VAT to commercial customers -- ranging from industrial companies to municipalities and non-profit organisations -- or carry the cost itself, risking narrower profit margins.

Dutch-based rival TNT (TNT.AS) said it did not expect charities and some other types of customer to be charged extra.

"Based on the experiences of other European postal markets and existing analyses of the German postal market's competitive situation, I do not think that Deutsche Post will pass on costs to charitable organisations, public authorities, non-profit organisations or clubs," said TNT Post Deutschland Chief Executive Mario Frusch in a statement.

German industry association BIEK also said it does not see prices rising. Analysts have said they see a hit of between 150 million euros and 300 million to Deutsche Post's annual earnings before interest and tax (EBIT) if the company carries additional costs itself.

A spokesman for Deutsche Post said it was too soon to assess the possible impact on earnings.

TNT is already active in the German letter mail market but has struggled to grow or make money there. It has a market share of only about 3 percent and analysts estimate TNT Post generated a 2008 operating loss of about 50 million euros in Germany.

TNT said this month it will review its German operations before the end of the year. (Additional reporting by Matthias Inverardi; Editing by David Holmes) ($1=.7502 Euro)