Freeserve threatens to quit UK in tax row
LONDON - Freeserve has claimed that its rival America Online is gaining an unfair advantage by exploiting a loophole in UK tax laws, and has threatened to quit the UK for the US unless this changes.
AOL, which is one of the UK's most popular ISPs, does not pay VAT because it is registered for tax purposes in the US.
Freeserve claims that AOL can wield a "powerful competitive advantage" over UK ISPs by not charging VAT on its flat-rate internet service.
John Pluthero, chief executive of Freeserve, said his company would have to consider moving out of the UK unless Customs & Excise changes AOL's tax position to create a "level playing field".
The news that AOL does not charge VAT was revealed in a broker's report from investment bank Merrill Lynch. According to the report, for every 100,000 flat-rate customers, AOL earns £2.6m a year by not charging VAT.
Freeserve says that if AOL charged VAT, it would have to charge customers £17.60 for unmetered internet access, compared with Freeserve's fee of £12.99.
The US company has avoided VAT because of a 1997 Customs & Excise ruling, which states that non-UK ISPs that are classified as supplying content, rather than telecoms services, are exempt from VAT.
Freeserve claims that AOL is mainly supplying a telecoms service and is, therefore, liable to VAT. Freeserve has called on chancellor Gordon Brown and Customs & Excise to change AOL's status.
AOL defended its position by saying that it complies fully with all the laws in all territories in which it operates.
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