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Tuesday, 31 July, 2001, 03:22 GMT 04:22 UK
Freeserve attacks AOL tax status
aol.co.uk homepage
aol.co.uk - content provider?
Internet service provider Freeserve claims rival AOL is getting an unfair advantage by not having to pay VAT in the UK.


If AOL in the UK were in the same VAT position as Freeserve it would need to charge its customers 17.60 per month for unmetered access

Freeserve
The British company says that AOL UK is treated differently to other internet service providers (ISPs) following a ruling by the UK tax authorities.

Despite being one of the UK's most popular ISPs, AOL is registered for tax purposes in the United States.

"By not charging VAT on its flat rate internet package, this division of America Online wields a powerful competitive advantage over UK internet service providers," Freeserve said in a statement.

Tax advantage

The revelation that AOL does not charge VAT was contained in a broker's report by investment bank Merrill Lynch, released on Monday.


AOL complies fully with all laws in all territories in which it operates

AOL spokeswoman
The report says that for every 100,000 flat rate customers AOL earns 2.6m a year by not charging VAT.

On a customer base of one million, Freeserve claims, this equates to a tax advantage of "at least 26m a year".

"By comparison, in common with other UK ISPs Freeserve charges 12.99 per month, which includes VAT of 17.5%.

"If AOL in the UK were in the same VAT position as Freeserve it would need to charge its customers 17.60 per month for unmetered access," Freeserve said.

Legal opinion

"Freeserve has received a legal opinion that the UK division of AOL should be charging VAT for its services in the UK.

"This is because the provision of internet access by AOL in the UK is in the main the supply of a telecoms service and therefore liable to VAT."

AOL has escaped VAT following a 1997 Customs and Excise ruling. According to this ruling, non-UK ISPs that are classified as supplying content, rather than telecoms services, are exempt from VAT.

Freeserve has called on HM Customs and Excise and the Chancellor Gordon Brown to change AOL's tax status.

AOL defence

An AOL spokeswoman defended its UK tax position.

"AOL complies fully with all laws in all territories in which it operates," she said.

"In the UK, AOL is subject to the relevant UK tax authorities who, since the launch of the AOL service in the UK in 1996, have recognized that the hub of AOL's global network is based in the US.

"In keeping with the ruling of UK tax authorities, AOL is treated as a provider of information services from outside the European Union, a status available to any other similarly positioned provider."

 WATCH/LISTEN
 ON THIS STORY
John Plitheroe, Chief Executive of Freeserve
"We find it absurd that the governent should allow such an extraordinary policy"
See also:

25 Jul 01 | Business
AOL snaps up IPC magazines
16 May 01 | Business
Freeserve hikes broadband prices
30 Apr 01 | Business
AOL seeks UK cable alliance
16 Apr 01 | Business
AOL surfs past 29m subscribers
12 Jan 01 | Business
Giant of the dot.com world
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