The European Court of Justice ruled that Royal Mail should remain VAT exempt because it is obliged to provide a universal postal service, which its competitors are not.
TNT, owned by Netherlands-based TNT NV, had argued that since the postal market was deregulated three years ago, Royal Mail should no longer enjoy the competitive advantage over its rivals of paying no VAT.
But the Luxembourg-based court ruled that Royal Mail's obligations had not changed when the postal market was liberalised in 2006 and hence it should not have to pay VAT.
"Royal Mail is obliged to provide a universal postal service including at least one delivery to every address and one collection from every access point every working day at affordable and uniform prices," the judgement said.
A spokesperson for TNT said the company "is currently reviewing the judgement".
David Robottom, a consultant for TNT, said the judgement would surprise direct mail users. "TNT has a strong case as there is an inconsistency the way VAT is applied in the UK market," he said. "It creates an imbalance in competition, particularly for financial services and charities, as these sectors can't claim VAT back."
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