Tier fees increased by tax

I suspect it will be LL who would be liable for any backdated tax, not the subscribers. LL could attempt to get a retrospective payment from subscribers but I doubt they would get very far!

Actually, I suspect that is what happened - LL got a large VAT bill from the tax man for the period from when they moved the payment offices to the UK and thought "whoops! we'd better increase the prices for EU subscribers quickly to compensate"...

Matthew

Well, I've just consulted the HM Revenue and Customs web site - the VAT documentation is of the customary EU over complexity. However it does state quite clearly in Schedule 8 of the VAT Liability Law (which lists what is zero rated for VAT - i.e., not liable to VAT)....
under Group 7 International Services as follows.....
--------------------------------------------------------------

Group 7 - International services
Associated notice: 741 Place of supply of services
Item No.

1. The supply of services of work carried out on goods which, for that purpose, have been obtained or acquired in, or imported into, any of the member States and which are intended to be, and in fact are, subsequently exported to a place outside the member States -

(a) by or on behalf of the supplier; or

(b) where the recipient of the services belongs in a place outside the member States, by or on behalf of the recipient.

2. The supply of services consisting of the making of arrangements for -

(a) the export of any goods to a place outside the member States;

(b) a supply of services of the description specified in item 1 of this Group; or

(c) any supply of services which is made outside the member States.

Note:

This Group does not include any services of a description specified in Group 2 or Group 5 of Schedule 9.

-----------------------------------------------------------------------------------------

2 (c) would seem to apply to LL. ("member States" here meaning member states of the EU)

The two exclusions at the bottom refer to Water and Sewerage and Financial Services such as banking or credit - which can't apply to LL.

I've not found anything to contradict this - has anyone discovered anything? I think I will open a support ticket and ask for clarification.

That could very well be the case. I wouldn't be at all suprised if the traditional Friday afternoon cocktail hour (a.k.a. 'TGIF bash') will have a less festive character today, yonder on those Western shores of the New Land.

See the following link
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000902&propertyType=document

Basically in July 2003 new EU rules were introduced specifically for online-services such as SL - this legislation redefined the location of online services as being in the Customers location not the suppliers. This means VAT is payable on e-services such as SL

I think this only applies to businesses and not to private individuals - further down that lengthy document is the following:
-------------------------------

Do the use and enjoyment rules for electronically supplied services always apply?
The use and enjoyment rules apply in situations where the EU VAT position would otherwise be distortive. Consequently, they do not apply where:

the supply is to a private individual or non-business organisation or
the place of supply is the UK (because either the supplier or the customer belongs in the UK) and the service was effectively used and enjoyed in another Member State or
the place of supply is in another Member State (because either the supplier or the customer belongs there) but the supply is effectively used and enjoyed in the UK.

-------------------------------------

I've had enough of reading this stuff - I get enough EU Directives about Regulation to read as it is! What do others think?

i think i`m starting to pray some overbored playing sl rl lawyer is having a go at it to see if LL has any legal stand for the sake of all residents, i know i`d donate a good amount (tax that f`ers) and will engrave their names into every stone i lay ingame

i`m a private party and running at a loss, now i`m paying taxes wich ll will prolly stick in their own pockets as i can`t get it back

now to get some sleep, waited extra for perhaps a buyer and went over the 30 hours, staying in and follow the treads will prolly get taxed as of being productive earning money as i was online even when i did crap, nn

My understanding is the use and enjoyment rules are only a special case of the legislation and don't apply to private individuals .. they are already covered by the main place of supply clause a few paragraphs above

-----------------------------------

When is the place of supply of electronically supplied services determined by where the customer belongs?
The place of supply is where the customer belongs when electronically supplied services are received by:

any customer who belongs outside the EU or
a customer who belongs in a Member State, but in a different country (EU or non-EU) to the supplier, and who receives the supply for business purposes or
a private individual or non-business organisation who belongs in a member state, when supplied by a non-EU business.
------------------------------------


The use and enjoyment rules I believe are for the special cases where an EU company is supplied with services but those services are used outside the EU . The specific clause you mention is an exclusion of private individuals from this get out .

so i guess SL wants to get rid of anyone playing it for the profit. it's just one big expensive game. that's not so bad as you would think at first. it's called "cleaning up the mainland and then some private parts"

BUT

it's shameful the way they did it. ends do NOT justify the means.
at least with moving a bit of their ass to UK they should have learned how to have more tea and manners.

Has anybody tried to corner somebody from Linden management about this? Philip? Zee? Maybe Robin?

Still no mention of any of this on the blog. You have tons of questions. Their only answer is silence. Is it because they don't care or are they just incredibly disorganized?

How much effort would it take to type this onto the blog: We are aware you are concerned about the VAT situation. We share your concern. More information will be forthcoming.

Shame on you, Linden Lab.

Well it seems the the fan has been turned on and the umbrellas are up as the proverbial shitstorm hit's LL and what is their response so far as 40% of their users start dumping land, tiering down and reducing membership to basic? Yup, the usual nothing. Not even a "we are preparing a blog response soon" post.

By the way, does anybody know the reaon why they moved their banking to Europe? I presume it was for financial reasons and I wonder how the numbers are stacking up for that decision now.

[EDIT] I really hope an EU based lawyer and accountant can give us some pro-bono advice on this because I for one am getting lost in all the tax threads that are being provided. A simple 'yes' LL are obliged to pay VAT and 'yes' they are obliged to pass it on EU members (I don't believe LL will take the hit for us).

A lot of land, money and membership rides on having a clear unambiguous answer to this.

Maybe it is better for them to notify us by unexpected emails...

Rather that than the normal condescending note in the blog on how wonderful and fluffy the new VAT charges will be.. "Hey dudes, lets have a cool and groovy party to celebrate some extra fees"

Has anyone ever considered that the main grid could be just a world created in the teen grid, run by an 11 year old? We could all be residing in one prim, run by some mad matrix script...he prods every now and then, just to see how we react.

Anyway....Proof that transparency only exists in the world of the gods. But then, with heads not above the clouds, what do we mere mortals expect.

Given they charge us the VAT, would that not indicate that the actual deal is done in the EU?
If I buy (and pay for <- that's the key phrase) any goods or services in the EU - even if they come from the USofA - the EU consumer laws will apply- namely those of the country I reside in or if in doubt those outlined by the EU comissions.

Linden labs instead insists of applying US laws in respect to their TOS.

Now which way is it - they can't have both ways - picking the best of both worlds so to speak.

Lawyers to the battle please.... *evil grin*

Um, no.

LL is subject to the laws of every jurisdiction in which they are "doing business", to the extent they apply. With the establishment of LL's UK business presence in Brighton, they became subject to UK tax law and hence EU laws on taxes as well.

However, this does not mean that the TOS that you agreed to when you signed up for LL has to be, itself, governed by EU law. You signed (electronically, which is legally valid) an agreement to have that relationship governed by California law. On its face, and all other things being equal, this agreement is valid.

Now, the legal issue is whether a court in a European country would set aside that agreement based on local consumer protection laws in the various EU member states -- but the argument isn't "LL can't have it both ways" -- the argument is that the TOS violates x/y/z mandatory consumer protection law in country x/y/z.

Hehehe, in Holland sales tax is 19%.
Income tax varies between 35% and 48%, depending on your income.

Well having tried to work out the VAT rules on supply all day I'm still none the wiser. If the supply is for personal use, it's supposed to be governed by the rules of the supplier. If it's business use, it's governed by the laws of where you live and then they manage to give themselves more wiggle room by contradicting what all of the above means!

As I see it, I can't charge my customers VAT because my transactions are done in L$ and they are exempt. If all your transactions fall into the exempt category, you can't file to be VAT registered.

After getting the email myself (and being very unimpressed by yet another change of policy by LL with no notice to the customer), I decided to do a little research before posting my thoughts (IANAL)!....

Normally if a business was to change policy like this, under contract law, they should provide a minimum of 30 days notice of such a change - indeed, a lot of businesses would have absorbed the cost of the added vat. If they are now charging VAT to EU residents, it is safe to assume they are "saving" by not having to pay local taxes on the same sale (which seems to be 7.25%) - so to a non VAT registered UK residednt, the total (tier fee + vat ammount) should have only been increased by 10.25% and not the 17.5% they have done - LL will now be making an additional 7.25% profit on UK customers alone...

Firstly, when I signed up to SL, i formed a contract with Linden Research Inc, whoes address is 945 Battery Street, San Francisco, CA 94111 USA. LL have made is very clear that the business is based in the US state of California, and indeed residents around the world have to abide by the state laws of California - regardless of locale.

VAT law states that if a US company is supplying goods to a VAT registered business within the EU, and the business informs the supplier of their VAT registration number, then the goods or services are supplied ZERO RATED - IE vat is not charged on the goods, and therefore the EU business has no VAT content to claim back. It would seem this is what LL are doing (as they are requesting VAT numbers from registered businesses).

Now, it seems (by looking at some other posts on these forums) that LL have opened an office in the UK, and there is speculation as to that is why we are now being hit by VAT. If this is the case, it's a whole diffferent scenario. Firstly, we would have had to be informed that the contract was being transferred from Linden Research Inc to their UK Ltd company. After this, they could add 17.5% vat to EU residents billed from that company - regardless of which EU company they reside in. There are only 3 rates of VAT chargeable by any UK based business - 0%, 5% and 17.5%.

In addition, if they are now supplying the service and billing within the UK, rather than the US - being a "communications provider" they should also have an Ofcom approved code of practice pubished on their website and be a member of one of the two ADR (Alternate Dispute Reolution) services within the UK. It is against the law not to do so. Ofcom defines a "communications provider" as :

------------
a transmission system for the conveyance, by the use of electrical, magnetic or electro-magnetic energy, of signals of any description; and
(b) such of the following as are used, by the person providing the system and in association with it, for the conveyance of the signals—
(i) apparatus comprised in the system;
(ii) apparatus used for the switching or routing of the signals; and
(iii) software and stored data.

(10) In this section “signal” includes—
(a) anything comprising speech, music, sounds, visual images or communications or data of any description; and
(b) signals serving for the impartation of anything between persons, between a person and a thing or between things, or for the actuation or control of apparatus.
-------------

Now, going back to the theory that LL are still billing from the US - there are distance selling thresholds for the supply of goods and services to customers within the EU member states and these MAY apply to suppliers outside the EU as well - this may be what we have seen happen.

So, LL bills us in US$, the only address they publish and where they insist on official documentation being sent to is in the US, we all have to abide by the rules governed by the US state LL are based in and no physical product is received to customers makes it clear that LL is insisting that the service terminates within the US (the actual service we use is then "delivered" to us via our own ISP's using the peering and connectivity arrangements your ISP has with LL and other networks.

So - to sum up - LL insist the service is US based, but are now charging VAT on it to EU residents as though it was not and making more profit out of it.

You cant have your cake and eat it....

Gomez

I meant foreign currency fees

The pound being strong against the dollar gives us more spending power but doesn't give us much of an advantage inworld as we still need to recoup the money in L$ and then convert it into US dollars. 195 US dollars is still 195 US dollars, even for people in Europe.

It isnt having their cake and eating it. You can bet that they are paying back VAT that they owe with respect to the period from the establishment of their UK PE. And they are not charging you for that, they are eating that. And you can also bet that whatever VAT they are collecting is going to be remitted to the UK fiscal authorities, net of their own VAT paid. It isn't a case of LL getting rich off of you. I understand you feel fucked, and the notice on this is shit, but short of trying to void the TOS by suing LL I don't see what you can do. It isn't a case of LL getting rich from you by charging you VAT, that's for sure.

Great post, Gomez. Too bad there is no one to respond to it.

That's a bit unfair, I think. With a couple of exceptions, most of us are sympathetic and supportive of your situation.

Much better choice of words, Victorria...that's what I meant to say.
Now that the VAT is applied, imho it is an 'indication' of a transaction concluded with one part residing in the EU, so any infraction of local laws may(or may not) be subject to some court in the EU taking a closer look at it's coherence with the applicable laws in the country of residence. This may be one of the interesting - and probably beneficial - aspects of the new policy

Yes I think that some hay could be made from this, actually. I'm not an expert in EU consumer protection law (I know a little bit about Germany's AGB-Gesetz and things like that but otherwise I'm not familiar with local laws on this). Speaking with a local lawyer friend who is more familiar with local consumer laws may be an idea.

OK so why now?! SL has been around a few years so why start charging VAT NOW! We have been paying VAT in the UK for years, so how come they didnt charge VAT to EU before?

Titania XX

Sorry if this has been mentioned but its taking forever to load up one page so I havent had chance to read all the posts

LL didn't always have a business presence in the EU. They now have one in Brighton. That changes things from the tax perspective. Does anyone know when the business presence in Brighton was established?