The Customs and Excise Commission had decided in March 2002 that
AOL was exempt from paying VAT in the UK, because the company is
classified as a content provider based outside the EU.
Freeserve has attacked the decision, claiming that AOL is a
provider of telecoms services and should therefore pay VAT in the
UK. Under European law, telecoms services are the only taxable
service for foreign companies.
Due to a change in the law, AOL will be required to start
charging UK subscribers VAT from 1st July 2003. However, AOL
alleges that the US media giant has already made a £100 million
profit in unpaid VAT since June 2001 and has gained an “unfair”
competitive advantage.
A spokesperson for Freeserve told the media after the High
Court’s decision was announced: “We estimate that £100 million of
tax has been lost to the Treasury through Customs’ failure to apply
existing law, and find it extraordinary that we should even need to
undertake this action when this is money to which the UK government
is already entitled.”
The UK ISP has already relocated its unmetered ISP operations to
the island of Madeira, where the VAT rate is lower.
