In the Chancery division of the High Court on Friday, Justice Evans-Lombe ruled against Freeserve’s claim that tax commissioners made legal errors when they allowed US-based rival AOL to continue to sell VAT-exempt services until June 2003 when the law was finally changed.
Before the enactment of the VAT and Ecommerce Act, a company that supplied services to the UK from abroad did not have to account for VAT, unless it provided telecommunications services on which VAT is payable.
Up until July 2003, Customs ruled that AOL was a provider of digital content, and therefore exempt from paying VAT. Freeserve argued that the situation changed in 2001 after the European Court of Justice gave guidance on the tests that should be applied in such a case, and claimed that commissioners should have looked at the state of the law in existence at the time in making their ruling.
A clearly delighted Customs told Accountancy Age that the judgement vindicated its decision not to charge AOL with VAT, before the law was changed in 2003.
In a statement, Freeserve said: ‘We are disappointed with the verdict, but we are pleased that since 1 July 2003, AOL is in line with all other ISPs and has been paying VAT so the level-playing field we fought for has been achieved.’
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