MPLS is a transport mechanism that is developed to carry data over a packet-switched network, and can seamlessly operate between L2 and L3 services. Therefore, there are effectively two types of MPLS VPNs available to enterprise customers today.
L2 MPLS VPNs – (Sometimes called VPLS), these are logically connected by switching, and the customer manages all routing between two or more adjacent routers on the WAN; peering relationships can form directly between sites.
L3 MPLS VPNs – These are logically connected by routers, and the customer’s CE router peers at L3 with the service provider’s router (PE) device. In this scenario, the service provider is able to manage the routing between the sites on behalf of the customer. Each site carries its own IP subnet. To deploy a routing protocol over this type of VPN, the ISP needs to participate in it.
Stuck-in-Active: Journal of an IT-Network Administrator 