UK VAT Law

LL puts EU owned businesses in this position by refusing to consider L$ a valid currency, thereby meaning that transactions using it are in a legal grey area and can't be counted on to be acceptable for a business' VAT registration. LL also applies varies technical limits, but those are relatively easy to get around compared to this legal problem.

90% of other online systems that process payments for private individuals selling online goods can automatically detect the country the buyer is coming from, collect the VAT, and pay it to the taxman. They may charge a commission for doing this, but LL hasn't even offered to do that.

In other words they need to redesign SL to be Euro-ized.

Even leaving that Eurocentric approach aside, there are significant other problems associated with making the Linden a "currency equivalent". If everything that is taking place in SL is real currency transactions, then many *more* RL laws will be deemed to apply to SL than is even already the case. Never mind the gambling bans, wait until US states decide that any money you are making on servers based in their state is taxable income to you in the US because it is taking place in USD and inside their states in the US, and requires LL to withhold those taxes from your revenues or deduct them from your Linden balance.

Yeah, that would solve the problem almost entirely. Except...

in fairness, it wouldn't be so easy. It would be trivial work for some large-scale currency speculator (large scale? actually pretty modest-scale!) to destroy the Linden as a currency, and wipe out the entire company and all its assets along with it. Look at what happened when Norman Lamont tried to shore up the pound within the ERM - Soros and the big bad wolves cost us billions (3.4 - pounds not dollars,) in a single day. Black Wednesday (see http://en.wikipedia.org/wiki/Black_Wednesday .)

Linden wouldn't take a day to break - a reasonably resourced speculator could squish the company by WiFi in the time it took to drink a skinny latte in Starbucks. Or maybe it would be more profitable to bleed it to death slowly. If there's a profit to be made destroying an economy, someone somewhere will make it. National currencies only work because they can (for the most part) draw more heavily on reserves than individuals or small groups of speculators can.

So (much as it goes against the immediate grain,) I'd have to advise LL not to go there.

*sigh* So maybe that means they will do it - it would certainly be the icing on the self-destruct button

Well it was why I title the thread "UK" specifically. I was aiming at UK specific tax law which on the surface appears to claim that LL's services should not be taxable. There are however provisions for complying with the EU directive burried deep in the HMRC web pages.

So the short answer on the "was it taxable in the first place if they played it differently?" is .. only the HMRC people can decide and I yet to have an answer from them. Yes I raised an official query with them some days ago. I don't actually believe 90% of the well intended comments in these VAT threads.

On insisting that LL abide by giving notice on changing an agreed price seems slightly more clear cut. It appears that LL's lack of notice is illegal in the UK at least.

It would be fun to see a serious attempt to answer your own questions, but trying to avoid topics wandering on these forums is a little like herding cats.

I don't think this could happen because it's impossible to take out a loan in L$.

Only because it's not a "real" currency. Claim it to be "real", and you'll see it traded far more widely than LL could ever keep under control.

And actually it's not at all difficult to take out a loan in L$ - start a bank, offer an unsustainable rate of interest to sucker in a few mugs, and hey presto! You've been loaned their money (and frankly there's not a lot they can do if you choose to default on it.)
There's a wealth of readily available scripts to set up instant banking services out there, complete with your own fleet of shiny ATMs every bit as smooth and polished as the SLX ones, regardless of whether you have any capital or assets or relevant experience to back it with, regardless of whether you're an underage, "no payment info" newbie who thinks they've found a neat get-rich-quick scheme to part a few suckers from their ersatz para-currency. And by the looks of the number of people who come crying to the forums, there's no shortage of people willing to "invest" their Lindens in such black holes.

Who knows, there might even be some kosher banks out there - I wouldn't know; I haven't looked. I just see people complaining that they were promised 8% monthly (or whatever), and they've lost 20,000 Lindens. I mean, I'm sorry - I sympathise. But not much. If it looks too good to be true...

I hasten to add that I keep my lindens in a 4-prim virtual biscuit tin under my deluxe velvet shag multi-pose four-poster, and guarded by my own swarm of killer temp-rezzed cyber-hornets and a 50 kiloton warhead running an AIML-bot script homage to HAL from 2001, A Space Odyssey:

"Open the biscuit tin, HAL"
"I'm sorry Dave, I'm afraid I can't do that."

Neither a lender nor a borrower be - an adage for our times!

But it can't damage the economy in the same way that Black Wednesday did, because even if you start a bank, you can't perform credit creation.

Neither could George Soros - he didn't issue his own currency. He didn't "create" credit. But he still goaded the UK into spending £27billion attempting to prop up the pound, with a shortfall (mostly to his benefit,) of over £3billion by the end of the day.

And what exactly does "credit creation" mean anyway? (I'm sorry, but I genuinely don't recognize the phrase as having any specific meaning.) He certainly created a credit in his bank balance at the expense of the UK economy. If someone did that to LL, they'd collapse in a tidal wave of bankruptcy (even Anshe Chung couldn't cover a tab like that!)

The bottom line is that if the Linden was a tradable currency, speculators could buy and sell as many as they needed, whenever they wanted, and time their holding, buying and selling activities to maximize their profits. Maybe they'd go for the quick kill, or maybe they'd milk it like a bear for its bile. But they'd squeeze every last drop of profit out of it before it collapsed. LL simply aren't a large enough organization to go head-to-head with nation-states in issuing currency. They'd be a passing snack for the sharks, as they circled around meatier prey in the money markets.

On a related note I see Reuters has finally decided that VAT is news.
http://secondlife.reuters.com/stories/2007/10/02/european-residents-angry-but-not-leaving-over-vat/

They do of course spin the story though so that the title includes "but not leaving" and manage to completely ignore the illegal lack of notice.

I don't know about you, but I don't trust Reuters as far as I can spit them right now.

You seem very sure of that, but can you back it up? I was advised the same last week, but somebody at SLU pointed out that although the lack of notice is against regulations in some European countries, it doesn't appear to be the case in the UK.

Eric Reuters contacted me yesterday asking if I'd speak to him about the VAT situation, but I declined. Having seen the article he posted later, I'm glad I did that now.

Please let's not go down this route as well! Isn't HM Revenue and Customs enough? If you bring in consumer credit you need a licence from the OFT (Office of Fair Trading) in the UK! :-/

Sorry to be a Bear of Very Little Brain, but money is a closed book to me. I've ordered lots of US products from US websites and I pay the price listed on the website - ie the same as US customers. Of course the shipping is more, and my bank charges me exchange rates - but that's all. I've ordered pet products, CDs, books, teas, and only ever paid the price listed. I may be a financial ignoramus, but I always check my invoices. [G]

Something else has occurred to me. Isn't UK/European VAT the same as US Sales Tax? Some states charge different amounts (I've seen _that_ on shopping sites "X [name of state] residents add X% for Sales Tax". If that's the case, shouldn't LL operate a truly level playing field, and if they're charging Europeans VAT, charge Americans Sales Tax where it's due (sorry my American friends )? If in fact they've argued that Sales Tax is included in the tier etc, shouldn't they argue the same for VAT?

As I said - money is a closed book to me so please forgive any naivety.

As I understand it US Sales taxes only apply if you in the same state as the supplier, and do not apply to sales across state lines, and there are no sales taxes on internet sales. I'm in the UK so no expert, but several US citizens have given this explanation elsewhere.

"Speaking in office hours that maxed her sim’s avatar capacity, Harper deferred questions about the specifics of the new policy to Linden Lab’s finance department. An overflow capacity of attendees piled into adjacent regions, and shouted questions into the forum."

Has anyone published a transcript of that riot?
Although, from the flavour of it, Robin 'spoke' but didn't actually 'say' anything.
I'd be interested so hear how she justified the complete lack of notice.



"The new VAT fees come at a time when Second Life’s growth is already slowing in Europe. The number of active users in Germany, Britain, France, Italy, Spain and the Netherlands all declined from July to August, according to Linden Lab statistics."

"Harper said she hoped Linden’s tax experts would be available to field questions from residents next week. But she said the new VAT policy went into effect “because we crossed some sort of threshold in terms of the number of European customers.”"

Maybe they'll cross it again, but in the opposite direction. Even if they do, I have a feeling that VAT is now ratcheted in.




Sometime in the future, there will be online worlds comparable to LL. If LL still want to be in business then, they really need to start building customer loyalty.
Most people understand that sh*t happens, but LL's habit of creating information vacuums is really inflaming every situation.

Not to mention the fact that not leaving SL is not the same as not leaving as a customer of LL. I expect estates that take $L for tier will do booming business in the future, as many(/most) Europeans flee from doing any business directly with LL. I guess LL will still make a trickle up profit, but less than if they weren't so hopeless at providing a end-user service in the first place. Maybe that's all they want anyway - they give every indication of not caring what we think ATM.




You expected any more? (Call me a cynic, but I didn't.)

Yes this is correct. There is no federal sales tax. State sales taxes generally do not apply across state lines (ie, they only apply to transactions where the seller and buyer are present in that state). And there is a federal law banning state taxes on internet services. So for all of those reasons, basically no-one in the US is paying sales tax relating to payments to LL.

It's part of your statutory rights. From the Trading Standards Authority:

"Offences
If the seller is in business (rather than a private seller), he may have committed a criminal offence if he:
..snipped..
* advertises a misleading price;"

Unfortunately the main online method of reporting a problem about an American business is the FTC. They don't take on individual cases, but add your complaint to a database of internationally accessible complaints which *may* then be acted upon.
http://www.econsumer.gov/english/
In that case, as many people who can be bothered to fill in the form the better.

But there's nothing wrong with reporting the matter to the OFT as well [enquiries@oft.gov.uk]. I tried ringing consumer direct but gave up after a few minutes of "your call is very important to us". Might try again later...

PS. I don't buy the "It's a tax increase so it's ok" line. Tax increases are agreed at some level of government then a period of notice is given to all traders and consumers that taxes will increase in X months time. THEN it's ok for each trader to increase by the previously known tax hike. In this case it's the company who has failed to make known that tax wasn't included in the price (or if you believe Robin, it was in the price). And has then sprung a surprise on us all. Company's fault. Company should swallow the cost for a month and give people the chance to tier down or bail out before the increase takes effect.

I can't back it up (though I still believe it to be true,) but even if it's not strictly defined in law, it's still a scandalous way to treat customers. And I don't recall they gave any notice to the residents from European countries where it is more certainly illegal either, so they clearly didn't bother to check the law anyway.

Half of me hopes someone sues the incompetent *******s to hell, while a (slightly less aggrieved and vindictive) half hopes they at least stay afloat a little longer.

I don't suppose anyone could post the email (or a link to it if it's out there somewhere,) for the benefit of those (like me) who never received a copy? I doubt there's much in it that isn't covered by the blog and forum posts, but I'm still curious.

They are still (of course) listing prices without VAT, and I see they also quote (on http://secondlife.com/whatis/plans.php)

"Quarterly: $22.50 - in full ($7.50/mo)
Annual: $72.00 - in full ($6.00/mo)"

So what exactly does "in full" mean in this context? I would consider that to mean "fully inclusive of taxes, etc." - but clearly it doesn't (to them anyway.)

The regular monthly subscription is merely "Monthly: $9.95/mo" (not "in full"

That "in full" means that the entire sum of 22.50 is charged, which breaks down to that 7.50 a month charge. Some people think that seeing 7.50 a month is all they pay monthly. That's just for clarity.

Though I've seen some EU people say they were charged VAT yet, so I'm not sure how it's being implemented.

Ah, well I guess they do things differently in the US. Here it implies (to me at least) that what you see is what you pay - pretty much the exact opposite. The "in full", after all, is outside the parentheses with the quarterly charge "$22.50", and so can't sensibly be considered (logically or grammatically) to relate to the bracketed $7.50.

It appears in your account page with VAT included. Well tier fee does, membership fees don't yet but should. Prices anywhere on the site should include a disclaimer to say that they don't include VAT or else they are misleading consumers.

Of course that's European requirement, so as an American company LL can ignore EU laws ....when it suits them!

The same way as she did over the gambling issue, she has said something along the lines of "If something is illegal, you can't say, you have time to stop this illegal practice".

However on VAT that makes no sense. LL are liable for collecting it, Robin was quoted (and then unquoted) as saying they were absorbing it.

To put it another way, the EU taxman tells LL "17.5% of the price you're charging your EU customers is VAT, pay up".

Now at this point LL aren't doing anything illegal and neither are their customers. So to say they couldn't give notice that they were going to add VAT to fees is inexcusable. They also had to work out how they were going to go about it, who they had to charge and when they were going to make the changes.

I'm sorry, but the no notice excuse doesn't work on this issue.

Quick question, does it say "VAT included" or do you mean that the price is shown and it's supposed to include VAT now?

I honestly have no idea, since I'm obviously not going to get the message.

The price on my account page for my tier fee now says "VAT Included" and the price reflects this in full.

The price on my account page for my membership fee, does not mention VAT, nor does it show an increase.

The prices on the land pricing pages do not say "VAT not included".