Europe's highest court ruled today that the universal postal service provided by UK's Royal Mail should be exempted from VAT, following a complaint from Dutch international mail group TNT.

TNT filed a court complaint to dispute the validity of the value-added tax exemption from services provided by Royal Mail, saying it provided comparable services but was subject to VAT.

The European Court of Justice (ECJ), however, took the view that the services provided by the two companies were not comparable.

"Royal Mail supplies postal services under a legal regime which is substantially different from that of an operator such as TNT Post," the court said in a statement.

Royal Mail was designated in 2001 as the only universal postal service provider in the United Kingdom. The UK postal market was later fully liberalised in 2006, without affecting the status and obligations of Royal Mail, the court said.

TNT entered into an agreement with Royal Mail for the latter to provide downstream services to TNT. It collects post from clients, sorts and delivers it to Royal Mail, which then ensures delivery to addressees.

TNT charges VAT for this service at Britain's standard rate of 17.5 percent, while Royal Mail's services are not subject to such a tax. TNT said its clients were mostly companies that could not recover VAT, so it wants to minimise the amount that it has to charge to customers.

The ECJ said not all supplies of services by public postal services were VAT exempt, regardless of their intrinsic nature.

"Only the supply by the public postal services acting as such, in their capacity as the provider of the universal postal service, are exempt," it said.

"Supplies of services for which the terms have been individually negotiated are excluded from the exemption," the court statement added.