DHL Group (AO) | Buy | VAT changes for the German letter business - storm in a teacup

Research evidence excerpt

DHL Group (AO) | Buy | VAT changes for the German letter business - storm in a teacup

exempt from VAT, while others are not, which might create an uneven playing field. Please

note that the VAT in question is not paid by DHL but by the sender of the mail. Thus, by being VAT exempt, DHL might price this

kind of business mail service at a lower price point than competitors, thereby winning market share.

According to DHL, of the EUR17.9bn in revenues of the German mail business, EUR2.1bn or 12% relate to this kind of service.

Compared to group revenues, 2.5% of sales are affected.

This is not the first time the issue has popped up. In fact, the previous German government already put in motion a change in VAT

law that allowed for a broader use of VAT exemptions for DHL's competitors with the aim of making the service VAT-free in

general. The current government is now merely changing the approach from VAT-free for all to VAT for all to raise revenues for the

government.

Why does it matter - or not

We believe the change in VAT treatment might be a non-significant negative for DHL, as it might lose a minor share of volume to

competitors.

We believe that for the majority of senders, the change in VAT treatment does not matter at all, as many large companies, who

probably account for the majority of letter volumes, do not pay VAT thanks to the "Vorsteuerabzugsberechtigung". Companies

that are "vorsteuerabzugsberechtigt" can reclaim VAT payments from the Ministry of Finance in their tax declaration. The German

state estimates that the change in the law will generate EUR153m in tax revenues from all parties, including DHL, while DHL's

revenues suggest that the change should generate about EUR400m in tax revenues from DHL alone if a 19% VAT is applied to