Brussels clamps down on Internet loopholes

British customers using US based on-line services such as MSN, AOL and CompuServe face 17.5 per cent price rises following the planned closure of a tax loophole that has given American Internet service providers an advantage over their British counterparts.

The clamp-down has been given added impetus by fears that British customers may fall outside the protection of European Data Protection acts.

According to the Internet Service Providers Association (ISPA), on-line services with servers based in America do not have to pass on VAT to their customers because of a loophole in British tax law. The European Commission has agreed to attend to the problem within three months.

The swift response by Brussels is largely due to the fact that anyone who subscribes to a US-based service and gives them confidential information has no recourse under current European legislation.

Currently, if personal data is used for criminal purposes, the Data Protection Registrar, Elizabeth France, can act under UK law. But according to Ms France, because the data is stored in the US, prosecution would be "very difficult".

The problem was inadvertently illustrated by a security breach at CompuServe last week. A user, who pretended to be a member of CompuServe's staff, told customers that billing information at CompuServe had been lost due to a power surge and a virus. He told customers to re-forward their billing information to him.

Ms France is worried British customers may have to use US courts if the individual uses the data for criminal means. But this could be very costly.