Feeds

EU closes AOL UK VAT loophole (but not yet)

HM Custom states its case

  • alert
  • submit to reddit

The Essential Guide to IT Transformation

AOL will have to start charging UK customers VAT - from July 1, 2003, bringing it into line with British ISP rivals.

The change follows a policy review conducted by HM Customs & Excise, the British government arm responsible for VAT ruling and collection.

Currently, AOL UK is treated as a content provider domiciled outside the European Union, and therefore not subject to VAT, unlike UK competitors, which are treated as telecoms providers (and therefore subject to VAT). This ruling is estimated by Freeserve, the UK's biggest ISP, to save AOL £30m a year, and gives its rival a huge unfair competitive advantage.

In a Business Brief, published on March 14, HM Customs largely appears to endorse this viewpoint. But the authority argues that "differences in the current VAT treatment of such packages are a direct function of existing EC provisions, which fail specifically to cover packages of Internet service and content.

"A lasting, fair and clear approach, whereby all Internet service packages supplied by UK and non-EC ISPs are taxed in a similar way can only, in Customs' view, be successfully achieved through material
changes to the relevant EC VAT rules."

Such a change is underway with changes on treatment of VAT contained in the EU's new e-commerce directive, HM Customs says. This will see the determination of VAT charging on certain services - "including digitalised products, and so content provision" - move from reference to the location of the supplier to reference to the location of the consumer. The upshot is that the ecommerce directive, a very controversial ruling - especially with the US government and US-domiciled online retailers, catches AOL UK on the content provision front.

So what now? There will be a level playing field for all ISPs operating in the UK, but only from July 1, 2003. Will this note be enough to fend off legal action from Freeserve, which has applied for a judicial review of HM Customs' treatment of AOL? Considering that AOL will stand to profit to the tune of £40m until the ecommerce directive comes into force, we suspect that Freeserve will continue to argue its case in court that HM Customs is wrong. ®

HP ProLiant Gen8: Integrated lifecycle automation

More from The Register

next story
BBC goes offline in MASSIVE COCKUP: Stephen Fry partly muzzled
Auntie tight-lipped as major outage rolls on
iPad? More like iFAD: We reveal why Apple fell into IBM's arms
But never fear fanbois, you're still lapping up iPhones, Macs
White? Male? You work in tech? Let us guess ... Twitter? We KNEW it!
Grim diversity numbers dumped alongside Facebook earnings
Bose says today IS F*** With Dre Day: Beats sued in patent battle
Music gear giant seeks some of that sweet, sweet Apple pie
HP, Microsoft prove it again: Big Business doesn't create jobs
SMEs get lip service - what they need is dinner at the Club
ITC: Seagate and LSI can infringe Realtek patents because Realtek isn't in the US
Land of the (get off scot) free, when it's a foreign owner
Amazon Reveals One Weird Trick: A Loss On Almost $20bn In Sales
Investors really hate it: Share price plunge as growth SLOWS in key AWS division
Dude, you're getting a Dell – with BITCOIN: IT giant slurps cryptocash
1. Buy PC with Bitcoin. 2. Mine more coins. 3. Goto step 1
prev story

Whitepapers

Top three mobile application threats
Prevent sensitive data leakage over insecure channels or stolen mobile devices.
Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Boost IT visibility and business value
How building a great service catalog relieves pressure points and demonstrates the value of IT service management.
Designing a Defense for Mobile Applications
Learn about the various considerations for defending mobile applications - from the application architecture itself to the myriad testing technologies.
Build a business case: developing custom apps
Learn how to maximize the value of custom applications by accelerating and simplifying their development.