AOL's Broadband Offering Not Liable For VAT

by Amanda Banks, Tax-News.com, London

14 June 2002

In a move which is likely to infuriate its bitter rival, Freeserve, AOL on Tuesday announced the launch of its new broadband product - for which it will not be liable for VAT.

AOL is involved in a long-running battle with Freeserve and other UK-based ISPs, which argue that they are put at a competitive disadvantage by the fact that their US based rival does not have to pay VAT following a 1997 Customs and Excise ruling.

Although Freeserve recently forced a judicial review of AOL's VAT position, and is almost certainly angered further by the exemption on AOL's broadband offering, experts have suggested that the situation is likely to remain the same until 2003, when the introduction of the European Union's directive on e-commerce will mean that non-European companies selling online services within the EU must pay VAT.

However, talking to ZDNet UK on Tuesday, a spokeswoman for America Online explained that prices are unlikely to rise even then: 'Currently, our broadband product isn't VAT-able because AOL is based outside the EU,' she told the technology news service, adding that: 'We expect we will have to pay VAT once the EU directive comes into force next year, but we have no plans to raise the price at this stage.'

ZDNet reported that Freeserve declined to comment on the new broadband offering.

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