AOL Establishing Luxembourg HQ For VAT Purposes

by Ulrika Lomas, Tax-News.com, Brussels

08 May 2003

AOL Europe is to establish a Luxembourg HQ this July, when it will become liable to pay Value Added Tax (VAT) under new European Union rules.

The European division of the American media giant AOL Time Warner says the move will have little impact on its existing operations in France, Germany and the UK. The only significant change will be that all VAT charges for its European operations will be collected from the Luxembourg office, in order to allow the firm to benefit from the country's relatively low rate of 15%.

Since establishing its UK subsidiary in 1996, AOL has been exempt from paying VAT in the United Kingdom, which sparked a lengthy legal battle with- VAT liable- rival ISP Freeserve.

UK-based Freeserve, owned by France Telecom, argued that as the result of a 1997 customs ruling which classified America Online (AOL) as an information provider rather than telecommunications provider for the purposes of UK taxation, the US company had secured an unfair competitive edge, saving some £200 million in VAT payments in the United Kingdom.

However, as of July 1 this year, new EU tax laws require all overseas ISP operating in Europe to collect VAT.

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