VAT: 2nd Anniversary

It is two years since LL sprang the big VAT surprise on its European customers. It led a great many Europeans to abandon their estate businesses in SL, and move on to other things, myself included. I could not compete on rental prices with Americans while paying 19% more for my islands and monthly tier than them.

On this second anniversary I would be interested if there are any European estate owners left doing rental business in SL, and how they have managed it?

Was the decision of LL not to absorb the cost of VAT any longer (which maintained a level playing field between European and American estate owners), and to pass the cost on to the Europeans a wise move in retrospect, considering the revenue they then lost from the Europeans who pulled out?

Rock

I'm not going to name names here, but I do know of some situations where a "trusted friend in the States" might have solved that 20% dilemma.

Yeah... the whole mess seems really unfair... realise though, that it's not Linden Research but the EU that imposed this. If my state added on a crazy tax (and in California here, believe me they try all the time) ~ I would not expect Linden Research to eat my tax burden for me.

The moment they eat VAT tax, it would make a whole lot of sense for everyone in Europe to use Linden Research as a tax 'loop hole' to pay for things with $L, thus ditching VAT entirely for a whole variety of goods and services. Seen that way, I don't think they had much choice.

Also, realise that I am not happy about all this ~ in fact I'm just waiting for the day that the USA cooks up something just as crazy, or crazier, than the VAT. Such as an internet sales tax or other such nonsense. Our states are in a budget crisis, and can't print money like the Fed can... so watch all the state governments support any possible replacement of local state, county, city and district taxes. We are likely to be in your shoes soon enough.

Let me guess.... no VAT in Blue Mars... right?

Saw an interesting sign the other day, "We can't be out of money, Washington says they still have ink!"

Any financial advantage gained by Americans when LL had to impose VAT on European residents was lost in the following months as the US dollar plunged in value against the Euro and the UK pound - although the rates have converged a bit since.

I don't own a huge amount of land, but I watched my tier get cheaper each month as the dollar went down.

And nobody gets old or dies either. And you can eat all you want and never get fat.

No idea, but I have raised the question in the BMO forum.

Rock

One of my stores currently sits on a sim owned by a Euro landlord. Costs a bit more, but the service and atmosphere more than makes up for the incremental cost. I've been on this person's sims for almost as long as the VAT rule has been in place except for when I took a hiatus from my business for a few months. Upon my return, I went straight back to the same landlord.

I do notice a lot of turnover though. Probably folks that eventually find a less restrictive atmosphere at a lower cost.

This didn't help landlords, though; US landlords could still undercut them for European business, because the base cost for them was still a lower number of dollars.

As was mentioned at the time, the big failure was not that they didn't absorb tax for European users, but that they didn't put sufficient processes in place to allow them to VAT register - an EU system explicitly designed to prevent businesses from non-VAT countries universally undercutting the EU. I suspect that at about the same time, a lot of business confidence was lost in the EU because a business platform that doesn't support VAT-registration is barely a business platform at all in EU reckoning.

As we pay in US dollars I don't see how this can be the case for an estate owner. An estate owner, looking to pay their tier costs, has to raise the fees through Linden dollars (or USD$ via Paypal etc.), the exchange rate of the dollar is therefore irrelevant. I pay USD$295 + 15% for my island, an American would pay USD$295, they have a business advantage.

Consumer wise, the falling dollar made the world more attractive for Europeans. So yes, if you have a set budget to spend, then it became cheaper. If you were looking to expand land holdings, your pound or Euro stretched further, but when it came to covering tier costs, VAT puts Europeans at a disadvantage.

This isn't the fault of Linden Lab however.

It is. It entirely is. It is the method of requiring businesses to earn in a virtual currency but to pay in a real one - which is 100% engineered by LL - which prevents them from taking advantage of the EU's own protection against undercutting due to VAT.

If the EU would actually get their heads out of their backsides they'd see that the issue with Second Life is precisely the issue that their legislation was introduced to prevent. This is the fault of the EU and their pigheaded bureacratic head in the sand policies.

Oh.. and don't forget that UK VAT goes back up to 17.5% in January....

No. The EU legislation already includes a system - VAT registration - specifically intended to prevent this situation. It allows EU businesses to escape paying VAT, as long as they collect VAT from their European customers; but they can still sell to US customers at non-VAT prices.

The problem is that EU based Second Life business can't use it, because they can't VAT register when their sales are made in "worthless" L$, and when they cannot identify which of their customers are Europeans and which are not.

LL could fix both of these, but they won't - especially the first one, because (as I'm sure everyone knows) the whole "L$ are worthless" line is a legal trick by LL to ensure that they can't be sued for inventory loss or database corruption.

So LL had a choice - give up their very dubious legal safety net, which allows them to continue having an unreliable platform at no risk to themselves.... or alienate an entire continent of businesses. And so, well, yes.. I think they are responsible for the direction in which they made that choice.

That's very interesting.

Maybe there is some hope for EU people after all to get rid of VAT, where it shouldn't apply?

There are European business owners, using Second Life, who are VAT registered and therefore not paying VAT on their tier fees. There's a box to put your VAT number in.



The EU could fix this situation by keeping their greedy snouts out of a platform whose inworld sales they don't consider to be services for the purposes of VAT. They should allow Europeans a level playing field, help them to prosper and then tax them on their earnings, not tax them on tier, hampering their business and then tax them again on their earnings, that's no way to encourage growth.

Yes we are one European company that doesn't pay the VAT to LL and I agree there should be a level playing field for all Europeans in SL.

Back to Rock's original question, I am one of those who had a multi-sim estate; being based in the UK, I was looking at a 17.5% hike in base cost overnight. Fortunately I am also one of those with a trusted partner based in the USA, so the majority of my sims were transferred to her. I still retain a few and they produce a modest profit overall - fortunately I had built up a sizeable tier reserve so was able to ride out the Homestead storm, and the latest bank-led recession. And I have a small SL biz producing textures that helps

I am not of course anywhere near large enough to warrant VAT registration, and Ciaran is exactly right that the EU legislation on VAT & computer services does exactly the opposite of what it intended as far as SL goes - I can't speak to the rest of what they intended but I'm sure SL played no part in their thinking. Nor will it for some time to come (unless the French produce a MondialVerite, in which case expect all sorts of shenanigans LOL)

As far as Blue Mars goes - the same VAT situation applies to EU residents. No hope there!

Inc

The US may be getting a tax similar to VAT soon.

http://www.washingtonpost.com/wp-dyn/content/article/2009/05/26/AR2009052602909.html

I run a small estate (4 sims) as european and managed to get vat registered, however I did not register the estate but the trade in L$
Because LL shows up as the one buying and selling it is trade with a non eu firm and I dont have to pay any vat on that

The current VAT registration threshold is £67,000 (US$ 110,000 roughly). That's the tier cost of 31 full sims, so I'm not clear how you managed to become registered with just 4 - unless you're buying/selling Lindens?

Inc

Dutch VAT registration has no limit and yes I do trade in L$ as wel, that is where i base my reports on, turnover of that is about 24000 € per month on that

You can VAT register below the threshold in the UK if you want to. Most people choose not to because the associated costs of keeping records etc. make it an extra burden.

Yes, but only MDCs and other businesses with income in RL currencies.

Content creators and landlords that have their income in L$ _cannot_ register, because - due to the "L$ are pretendy fun money" rules - they have no qualifying transactions. No real money has ever come in.

The simple option - of charging VAT on L$ sales to Europeans, thus meaning that all European businesses in SL are automatically qualified for VAT exemption, since VAT was collected from the customer at the time of the purchace.. seems to have gone missing.

True. But BMO could learn from LL's mistake. i.e. the mistake of initially absorbing VAT, to create a commercial level playing field for all its residents; then deciding not to any more, passing on the VAT cost to their Euro customers; then watching as revenues from Euro customers fall dramatically to a level where absorbing the VAT was actually less of a financial hit.

BMO will have to decide if getting up to 19% less from their Euro customers (by absorbing the VAT) will actually be more revenue than the drop in revenues (by 19% or more) if they do not absorb it, and Euro customers refuse to try to compete with US cusomers who do not have to pay it.

Rock