Freeserve Gears Up For Court Battle Over VAT

by Jason Gorringe, Tax-News.com, London

25 February 2002

Freeserve Chief Executive John Pluthero announced last week that following over a year of petitioning the UK Government to force rival ISP America Online (AOL) to charge VAT to its UK customers, the company is preparing a case for judicial review.

This follows a recent European Union directive which will require all non-EU companies to charge VAT on digital sales, a rule which could add 15-25% on a variety of online transactions, including ISP subscriptions.

'Frankly, it makes my blood boil that this should go on this long,' Mr Pluthero told the Reuters news service last week. 'It's ridiculous. The UK Government is giving a foreign competitor an advantage to the tune of £30 million per year.'

The cause of the long-running dispute is the fact that AOL is registered in the United States for tax purposes, and is therefore exempt from charging VAT under a 1997 Customs and Excise ruling, which states that non-UK ISPs do not have to pay because they supply content rather than telecommunications services. However, Freeserve contests this, and has been fighting for over a year to have AOL's competitive advantage removed.

Pluthero hopes that the new European directive, set to come into force in 2003, will achieve what the UK Customs and Excise department has been unable (or unwilling) to. However, AOL appear sanguine about the future. A spokesman for the company's UK operations responded to the news last week by explaining that AOL is in complete compliance with current customs policy.

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