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AOL May Lose VAT Exemption In The UK

by Jason Gorringe, Tax-News.com, London

30 September 2002


AOL Time Warner could lose its controversial VAT exempt status after a High Court judge ruled recently that the decision reached in March by the UK's Customs and Excise Commission is 'arguable'.

The Customs Commission argued that AOL could not be charged value added tax because it is not offering telecommunications services, despite the fact that the ISP is taxed as a telecoms group in all other European countries. However, the recent ruling has opened the door for a full judicial review hearing, an outcome which will have delighted its main rival in the UK, Freeserve.

Alongside British Telecommunications, Freeserve has been fighting for years to have America Online recognised as a telecommunications company in the UK for tax purposes. Given its own recent departure to the lower taxed climes of Madeira, though, Freeserve's right to complain about tax incentives afforded to AOL has been seen to have been compromised by many.

However, speaking to the Financial Times on Friday, Freeserve general counsel, David Melville defended the September 22 move, arguing that: 'The margins in our business are thin and if one of your biggest competitors doesn't pay any tax, I'm afraid one of the things you have to consider is reducing your tax burden.'


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