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AOL UK has reacted angrily to claims made by BTopenworld that it has "done the least of all the major players in the UK market to advance Broadband Britain".

The comment was made by BTopenworld CEO Alison Ritchie in a letter to Paul Boateng MP, Financial Secretary to the Treasury, concerning AOL UK's current exemption from paying VAT.

Ms Ritchie claims the tax loophole - estimated to save AOL UK around £40 million a year - is "tantamount to [a] subsidy of £4.50 per customer per month…when it [AOL] finally launches a broadband service".

Ms Ritchie continued: "Given typical broadband margins this is a huge sum that could enable AOL to become the dominant retail provider of broadband access. It is clearly perverse for the government to prevent a genuinely competitive market at this important juncture, particularly when the advantage is being given to a US-based company which hosts key activities outside of the UK and EU."

However, the attack has angered AOL UK which has hit back claiming that the remarks are "laughable".

A senior spokesman for AOL UK told The Register: "The apparent claim that AOL has not played a part in the creation of Broadband Britain would be laughable were it not seemingly made by a serious company in correspondence with the UK Government.

"These apparent claims are even less warranted given that AOL has worked very closely with BT in recent weeks to help refine the development of mass-market broadband provisioning systems," he said.

This latest row between two of Britain's leading ISPs comes as BTopenworld ups the pressure on the Government concerning AOL UK's exemption from paying VAT.

Last month HM Customs & Excise, which is responsible for VAT ruling and collection, published its review of the matter. It concluded that AOL UK will have to start charging UK customers VAT from July 1, 2003, bringing it into line with British ISP rivals.

But BTopenworld claims this simply isn't good enough. In the letter to the Treasury Ms Ritchie said she is "very disappointed at this outcome" and that she is "seriously concerned for the potential damaging effect on competition in the UK market".

Furthermore, she said that if AOL UK registered for VAT in a "comparatively favourable jurisdiction such as Madeira" then other UK ISPs including BTopenworld may follow suit.

BTopenworld's threat is the latest gesture in a campaign designed to force the authorities to close the tax loophole that favours AOL.

Last year Freeserve threatened to move its operation to Algeria to avoid paying VAT. ®

Related Stories

EU closes AOL UK VAT loophole (but not yet)
Freeserve goes legal in AOL VAT spat
'If AOL UK paid full VAT it could fund heart transplants'
Freeserve threatens to move operation to Algeria

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