Freeserve is mad as hell, and it's going high-profile. The British ISP says it just discovered that mega-competitor AOL is allowed to wiggle out of a 17.5 percent tax that other U.K. ISPs – such as Freeserve – pay. How do you fight a media mogul? By taking your story to the rest of the media, of course.
Freeserve CEO John Pluthero must figure he's got a spotlight-ready David-and-Goliath story. What business reporter could pass on Freeserve's tale, which claims European Union law lets U.S.-based AOL avoid paying the 17.5 percent VAT tax on its monthly subscriptions while British-based providers of flat-rate access plans have to pony up the pounds? So AOL skips the VAT tax on its one million subscribers, according to the Guardian, while Freeserve pays it for its 500,000 flat-rate subscribers (it has 2 million subscribers total).
Pluthero was right. Since Merrill Lynch noted the discrepancy in a report issued Monday, Freeserve has been telling reporters the tax discrepancy saves AOL $43 million a year, which is hardly chump change (except maybe to AOL). British media gave the story generous coverage Tuesday, including two articles in the Guardian. By Wednesday, the Financial Times and Wall Street Journal had picked it up. The Journal added that "to further pique authorities' interest," Pluthero has been casting the missing millions as money lost annually to the U.K. treasury.
And why stop there? Pluthero issued "what could be viewed as a veiled threat" to the government, as the Journal put it, that if the loophole isn't closed, he'll lay off 100 of Freeserve's 350 workers and move the rest to parts still unknown. Speculation spanned the globe on where Freeserve's mad-on will take it. The Guardian said the U.S., while the Journal said it was Morocco, where the ISP's parent, Wanadoo, has operations. And don't forget offshore fortress Sealand.
Freeserve probably backs Merrill Lynch's comment that the tax discrepancy means "other ISPs' gross margins and price competitiveness are at a disadvantage relative to AOL's." But AOL hasn't been paying the VAT since it opened shop in the UK in 1996. Is Pluthero really just finding out about it now? The Financial Times quoted an executive of a competing ISP as saying he was "staggered" that Freeserve claims to have not known of AOL's exemption until the Merrill Lynch report.
Perhaps Freeserve just knows a shrewd opportunity when it presents itself. The ISP "briefly ran circles around AOL when it was launched in Britain but now is a much closer competitor," wrote the Journal. The VAT tax might hurt Freeserve but the nationalist PR won't.
Freeserve Threatens to Quit the U.K.
TheStandard.com
Freeserve Slams US Rival's £30m-A-Year VAT Advantage
The Telegraph
Freeserve Threat Over VAT
The Guardian
VAT Rule Threatens 100 Freeserve Jobs
The Guardian
Freeserve Attacks AOL Tax Status
BBC.com
Freeserve Looks To Africa Over Tax
ThisIsLondon
U.K.'s Freeserve Considers Moving Out of EU Amid Tax-Law Dispute
The Wall Street Journal
(Paid subscription required.)
Freeserve Complains Over VAT Anomaly
Financial Times
The Principality of Sealand
Sealand.gov
