My thoughts on VAT

OK I know that I am an American and I do not live in the UK. I have read many threads regarding this VAT issue. Please correct me if I am wrong but from what I have read it seems as if this is a tax that is placed on items and goods or services (please correct me if I am wrong at anytime!). So forth it seems as it there is now a tax on land tiers. This has upset many of the people from EU. I understand that you are all frustrated, I know some of you are wondering if LL will do anything to compensate this (10% am I right) hike. While I understand many of you want SL to do somthing I do want to ask you why you feel LL needs to do somthing to make the cost of tier (in some form or another) equal to that of which would be paid before the VAT.

I do not know the whole story behind the VAT, from what I have read it sounds as if this tax has been implemented again or on the behalf of LL. (correct me if I am wrong please!)

I am just a bit baffled on why people feel they need to be compensated if this is somthing that has been used in EU before and the such, and it sounds to me like it has and that the goverment controls this I ask you why you feel you need to be compensated.

Thank you for reading and please do not feel as if I am targeting anyone. I am just a bit curious as to why people feel LL needs to do somthing.

Thanks again!

This is what I posted in the other thread as an explanation of what the main issues with the new VAT payment were. It isn't the VAT per se but the way LL has handled the situation:

A cultural difference which I think many in the US (and clearly not LL) don't realise is that over here in the UK (and I believe other places in the EU), the price advertised *is* the price you pay.

In the US, (I'll use a shop analogy but the same applies online), the price tag is the base price. When you go to the till they add any appropriate sales taxes, so the price they ring up is often higher than the price on the tag. This comes as a surprise to many UK (and EU) visitors, since they are expecting to pay the price on the tag.

Here, when a price tag says £5, you expect to take the item to the till, hand over a five pound note and thats it - is the cashier said "sorry, that will be £5.50", they'd get short shrift. Any tax/VAT due is the responsibility of the seller and comes out of that £5.

If VAT were to increase (and it did increase from 15% to 17.5% about 15 or so years ago), prices would not increase overnight. Often the sellers would cover the increase themselves, and gradually increase prices over time.

As such, when we agreed to pay LL say $295 for an island, or $195 for a mainland sim etc. we expected to pay $295 or $195 per month - no more and no less. If any tax, VAT or whatever is due, when expect that to be LL's responsibility and to come out of that $295 or $195 a month (indeed under UK and I believe German law, the price quoted *must* include VAT unless explicitly indicated otherwise).

Also, over here, we expect (and indeed are legally entitled) to be given notice of at least a billing period (i.e. a month) for any increase to that amount.

That is why LL will lose EU customers - it has essentially increased its fees by 17.5% - sent out the e-mail notice *after* doing so, and for people paying mainland tier this is effectively retrospectively applied to the current billing period (under UK and I believe EU consumer law they could be taken to court over that, and we know the TOS clauses trying to limit liability to be covered under California can be overturned by the courts).

So to summarise, it is breaking EU laws by displaying prices which do not include VAT without explicitly stating so, and by increasing charges previously agreed without prior notice.

What LL should have done would be to announce a new charging policy - namely that EU customers would be charged in Euros (including VAT), and given a Euro price list such as

Monthly Island Fee: US: $295; EU: 245 Euro
etc.

(if you do the math you'll see that the EU price includes VAT)

Then given a date when the new policy would take place - allowing at least a month notice - e.g. 1 November if announced now.

Matthew

A nice analysis, Matthew, but the underlying problem is that national member state law is, via the Treaty, subservient to EU law. We and Germany may well have pricing laws, but these will not override the need to comply with EU law - the VAT issue being a case in point. That said, as you and others have suggested, there WERE ways that LL could have handled the communication around this much better.

Inc

Most people, whether subject to VAT or not, are really just upset about the sneaky, silent way LL approached this.

Practically (although I can only speak for my country, not the whole of the EU) prices are considered to be VAT inclusive unless explicitly mentioned (on invoices you'll see the breakdown of what is the cost and what is VAT, but the listed price is simply the total price) because it's either customary, or simply required by law; or people are currently paying for services/goods overseas but never get charged any VAT at all (personally I don't pay VAT for my US hosting, nor am I paying VAT on a magazine subscription sent from the US) so there is some confusion about that.

Also any VAT that is owed now has been owed for as long as SL has existed, so either LL has been comitting tax fraud, or it's been swallowing the expenses and decided to put an end to that. Either way, adjusting the site, drafting the mail, etc wasn't a 1 hour job so there was a window to announce this ahead of actually implementing it.

Others simply have a tight budget and suddenly see their expenses raised by 15-25% overnight since even if you tier down right now you'll still owe the VAT on the current tier period, or those running an in-world business will either have to settle for less profit, or raise their prices to recoup the additional expenses making them less competetive.

Forget compensation. I think you're pretty much on the mark on that one.

It's rather the practical implication. Assume that you tend to go to, say, a bar to relax and chat, etc.

One evening, when you arrive, you find that all $10 drinks now cost $12 for you and some of your friends, while others keep getting the old prices.

Would you storm out in a huff? Maybe. Would you cut back on drinking? Another option. Would you just keep on drinking as before. Another option, if you're rolling in dough.

It depends on your situation.

thanks to everyone who has posted. I appreciate all of the information that has been brought to my attention. It seems as if LL is at fault in many ways. Sounds like they have to advertise the prices in both USD prices for us Americans and also at a price that is understood by the members of the EU. They should have also told residents in the EU that use SL about this.

Thanks again all!

for me, its not just the lack of forewarning, its the idea that i must pay "Value Added Tax", on a digital space.. a nothing.. ones and zeros... its like a phone call tax.. only, i am phoning myself..... i cant hold it.. i cant take it away, ive no control on it.. i can only change how it appears...

i could write a book... i could hold it.. i could take it away.. i could control it.. i can see it.. but i wont pay VAT on it..


i could sell my space on SL... i would pay VAT on it..

i could sell my book... i wouldnt pay VAT on it...

is having a 3D enabled space on someone elses server, that i must pay to contribute my own stuff to... pay to use, just to be there at all, will never own... ie SL can go be written off any moment without warning..worth paying a tax for?

The balance sways... right now.. i question the reason i use SL at all.. if i continue using it, i would be better off being a visitor, not a premium member.. there is nothing to entice me to stay being a premium member now.. no advantage...

Even if i give away my little quarter sim... in a year i would save a thousand dollars...

From the main thread:
http://slrecord.typepad.com/the_second_life_record/2007/09/interview-with-.html#more

It seems that prices listed (up until yesterday) were indeed the way any EU citizen would expect them: VAT inclusive with LL settling the VAT owed behind the scenes.

That does make it an actual "discriminating" price increase, rather than just compliance with EU laws since Robin claims they've complied all along.

Valids points everyone, I am glad I now know a bit more about this whole issue!

Well according to Robin (http://slrecord.typepad.com/the_second_life_record/2007/09/interview-with-.html#more) LL have been "absorbing" the VAT.

What does that mean?

Well it means

a) EU customers *have* been paying VAT all along.
b) the $295 *has* to date included VAT for EU customers
c) the profit LL has made on EU customers has been 17.5% less than on US customers due to the need for LL to pay VAT

the decision is clearly that it cannot continue getting a lower profit from EU customers than US, so has increase the EU tier accordingly. There is *no* excuse why LL could not have given proper prior notice of this!

Matthew

Sorry to respond to you in two different threads about the same topic .

*gets a safe distance away from the non-EU members before going on *

I do understand why they want to simply increase the price for EU members to compensate so that everyone is paying the same base price, but since they've always been absorbing the VAT anyway (in a sense non-EU paying accounts have already in part been funding LL's EU VAT bill one way or another apparantly) they could have decided to simply raise prices for everyone by the same percentage.

That might seem unfair to non-EU residents, but it looks like that's been the case up until now anyway.

It doesnt HAVE to be compensated.. in fact i dont mind the VAT when it comes to my premium membership..
I'd be happy if we could have an option to pay our tier with L$ instead.
This way the EU wont have so much of a disadvantage when it comes down to owning, maintaining and utilize land/private estates.