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Freeserve Demands Action Over VAT Row

by Jason Gorringe,, London

21 December 2001

UK based internet service provider (ISP), Freeserve, demanded on Wednesday that the government act on an EU resolution to charge VAT on downloaded products purchased outside the European Union.

Freeserve has been locked in a long running dispute with rival ISP America Online (AOL), which is registered for tax purposes in the United States, and as such has thus far escaped VAT under the 1997 Customs and Excise ruling which states that non-UK ISPs are exempt from paying the tax because they supply content rather than telecommunications services. The UK provider has estimated that AOL saves around £30 million per year as a result of this.

In November, Freeserve wrote to Customs & Excise demanding that the inequality be addressed, and over the course of the year has variously threatened to sue the department, take it before the European Commission, and relocate to Algeria all, seemingly, to little effect.

The company's CEO, John Pluthero, announced in a statement on Wednesday that he welcomed the European Union's decision, but was frustrated with the slow moving Customs & Excise department:

'I am bitterly disappointed that, despite the new European proposals, Customs and Excise still refuse to make an announcement in relation to the VAT treatment of AOL,' he explained. 'The UK government has been sitting on this issue for at least one year...Having previously blocked this proposal, Freeserve is calling on the UK government to now implement the new Directive into UK law at the earliest possible opportunity.'

However, a spokesman from AOL UK was sanguine about the future, stating that: 'A review of the matter is currently underway and so far guidance from the UK tax authorities has not changed.'

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