America Online, the fiscally inventive internet division of AOL Time Warner, currently pays no European TVA (value added sales tax) – unlike its European Union rivals whose geographic location allows them no choice in the matter.
Alone among EU nations, the UK currently charges no TVA on goods supplied electronically from outside the EU. Which is why AOL Europe originally chose to base itself in London, taking full advantage of the UK’s more accommodating TVA regime.
This allowed AOL to escape tax liability on the grounds that the its service – although local in content – is technically supplied from the USA. However, the UK Treasury is to close this cosy loophole effective July 1 following intensive lobbying by ISP rivals. Which means that AOL will have to pay up or move house.
It consequently plans to move its European corporate headquarters to the Grand Duchy of Luxembourg where a far friendlier tax regime will enable it to charge its EU customers a lower rate of TVA than applies in Britain (from July) and other EU member states.
AOL already has a nominal presence in the tiny Grand Duchy which, although part of the EU, opted to become an effective autocracy run by conglomerate-friendly Grand Duke Henri who earlier this year was granted near-feudal powers. These include the appointment of the prime minister and deputy prime minister, both answering to a Council of Ministers whose members are recommended by the prime minister and appointed by the Grand Duke.
Little wonder then that the ISP is attracted to this Ruritanian throwback. Any similarity between its political framework and AOL's own management structure is purely coincidental.
Data sourced from: Times Online (UK); additional content by WARC staff