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Freeserve gets nod for AOL legal action

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Freeserve has been given the green light to challenge HM Customs and Excise's decision not to charge VAT on AOL's Internet service in the UK.

In London's High Court yesterday Mr Justice Moses cleared the way for Freeserve to continue its long running battle to achieve what it regards as a "level playing field" regarding the taxation of ISPs.

No date has been set for the full judicial review.

Freeserve has argued throughout that AOL benefits to the tune of around £40m a year thanks to a tax loophole that excludes it from paying Value Added Tax (VAT).

In a statement Freeserve said: "Freeserve is pleased to have won the opportunity to proceed with its challenge to what we believe to be the unlawful VAT treatment of AOL in the UK.

"We estimate that £100m of tax has been lost to the Treasury through Customs' failure to apply existing law, and find it extraordinary that we should even need to undertake this action for the UK Treasury when this is money to which the UK government is already entitled.

"Naturally, we intend to continue our campaign for a level playing field between ourselves and AOL," it said.

AOL levies no VAT on its services in the UK thanks to a 1997 ruling that maintains that the company is a content provider operating outside the European Union, and therefore not liable for VAT.

If AOL UK had, like Freeserve, been a classified as a telecoms provider within the EU, then it would have had to charge VAT.

AOL UK appears to have avoided this classification because its servers live in Virginia.

In March it was confirmed that AOL would have to start charging UK customers VAT from July 1, 2003, bringing it into line with other British ISPs.

However, Freeserve was not happy with this and argued that AOL should still be forced to pay the tax now and not wait until next year.

Announcing in March the ISP's intention to press ahead with legal action Freeserve's former CEO, John Pluthero, said: "The UK government has been fobbing off Freeserve and BT for over a year on this issue. It's time for the evasion to stop and the litigation to begin."

In July Freeserve said it was moving its unmetered ISP business Madeira to take advantage of the island's cheapo VAT regime. ®

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