Brit ISPs Take Legal Action Over AOL’s Favoured Tax Status

12 March 2002

FreeServe, the UK’s largest internet service provider – owned by Wannadoo of France – plans to instigate judicial review proceedings against Her Majesty’s Customs and Excise, the quaintly named government agency responsible for the administration and collection of VAT (value added tax).

FreeServe’s beef – supported at the eleventh hour by the mighty BT – is against the favourable VAT status enjoyed by mutual rival AOL, which for debatable reasons has been granted tax exemption on subscription revenues. Says FreeServe ceo John Pluthero: “You really have to wonder what it is AOL have over this government?”

AOL’s exemption is based on an arcane loophole favouring ISPs whose content is mainly produced outside the European Union – the USA in AOL’s case. According to industry insiders, this is the result of high pressure lobbying from US trade groups which the UK government lacks the will to challenge prior to the implementation of a new European law.

This is not likely to come into force before 2003 when overseas companies operating in Europe will be required to pay VAT, as European companies already do.

Complains Pluthero: “The Treasury will have allowed over £100 million to slip through its fingers. If we or BT can't get to the bottom of it, then let's see if the high court can't provide some answers.” The unpaid tax, he claims, allows AOL to channel extra resources into marketing and advertising.

Pluthero says that Customs initially promised a decision on the issue by September last year, since when several subsequent deadlines have passed.

Data sourced from:; additional content by WARC staff