Internet service provider (ISP) Freeserve is threatening to take the Government to court unless a resolution is struck over the tax dispute it claims favours its competitor AOL.
Freeserve has been lobbying the Customs & Excise department to create a level tax playing field since July, after Merrill Lynch released a report showing that AOL could avoid accounting for VAT in the UK because it is based overseas.
The analyst firm said that the savings could amount to as much as £30m per year.
Although Customs & Excise has completed a review of the AOL situation and a conclusion was expected in September, no decision has yet been published.
This week in a letter to Paul Boateng, the Customs Minister, Freeserve said: "In the letter we point out that in the event the position is allowed to drag on much further, we will have no option but to pursue a remedy against the UK Government before the European Commission, arguing that the Government's failure to act puts it outside the scope of current community law."
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