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EU's VAT Ruling Driving ISPs To Madeira

by Ulrika Lomas, for, Brussels

18 July 2003

The introduction earlier this year of the European Union directive obliging non-EU businesses to charge VAT on the sale of 'downloadable services' to EU residents has created something of an exodus of ISPs and internet firms to Madeira, according to a recent report.

Under the single registration clause of the directive, companies are allowed to pay the combined tax liability that they have accumulated throughout the EU in one member state, at that country's VAT rate. This has made Madeira - with its 13% rate - very attractive.

Reporting on Wednesday, the UK's Telegraph newspaper revealed that and Freeserve have already established offices in the jurisdiction, and that BT is looking to relocate its Openworld internet service to Madeira next year.

Speaking to the Telegraph, VAT practice manager at PricewaterhouseCoopers, Gary Burnes observed that:

'This is one of those seemingly unbelievable but true effects EU tax law throws up now and again. The idea was to create a level playing field for European firms. I don't think anyone anticipated that companies would start flocking to Madeira.'

Graeme Ross, head of indirect tax at KPMG, meanwhile, told the newspaper that faced with the prospect of dealing with 15 tax authorities, it is inevitable that internet companies and ISPs are opting for single registration, suggesting that:

'It is obvious that they would then shop around to find the lowest rate of VAT, and so that makes Madeira so attractive.'

The island is also ideal for e-commerce, according to the report, as following a decade of telecoms infrastructure investment, it now boasts the widest bandwidth in Europe.

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