BRUSSELS, Jan 15 (Reuters) - British state-owned postal operator Royal Mail should pay sales tax on individually negotiated service contracts, an adviser to the bloc's second-highest court said on Thursday.
Dutch postal rival TNT brought a case against Britain, saying it was forced to pay value-added tax (VAT) on its services while those of Royal Mail were exempt from sales tax.
In Britain, TNT collects mail from clients, sorts it and hands it to Royal Mail, which delivers it.
"As the provider of a universal service which is defined and controlled in the public interest, the Royal Mail is liable to pay value added tax only where it is providing services under individually negotiated conditions," Court of First Instance Advocate General Juliane Kokott said in a statement.
Most of TNT's customers are financial services companies that cannot recover VAT, and TNT had argued that Royal Mail should not be exempt from sales tax.
Under EU law an exemption is allowed for "public postal services" but the British market is liberalised with private companies like TNT competing with Royal Mail.
"Nevertheless, the Advocate General takes the view that not all services provided by the Royal Mail are, of necessity, exempted from value added tax. Rather, the exemption applies only to those services which are provided in the public interest," the court statement said.
"The exemption cannot, in any event, apply where items are carried at individually negotiated prices," the statement said.
The court is not obliged to follow an adviser's opinion but does so in many cases. (Reporting by Huw Jones; editing by Simon Jessop)