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