VAT Clarification and Extension

Yes that would be rational, but as I said in the other thread, Brussels is actively trying to export its standards and regulations at the moment, and I don't foresee a pull-back. It could happen, but it would go against the grain of what Brussels is doing in a few other areas at the moment.

LOL they must think they are the world's greatest salesmen if they think they can convince companies in other countries to voluntarily tax themselves when they don't have to.

I would not be at all surprised to learn that there is a committee in Brussels who are actively working out EU policy for taxing the world.

am I getting this right or are Island owners still screwed? looks like the hold off was for mainland residents only... if you own an island, and aren't a business.... you still eat it.... no waiting =(

what's the equivalent to "non-profit organization" in the EU ? and can they get VAT exemption?

Pretty much the same phraseology, in UK we would add in charities who would be given "charitable status". The regulations surrounding both of these are just as onerous as for a business and trying to say playing SL is a non-profit or charitable activity wouldn't really cut it.

Though with a 17.5% increase LL have now made me a "not for profit" organisation lol.

Island fees are paid for the coming month, with a free month in your first month of owning (or inclusive, however you want to look at it).

Mainland fees are paid retrospectively for the past month, based on the highest amount of (mainland) land owned in the month.

That wasn't always the case though Stephen; at some point it has been changed. My first sims were purchased on the understanding that the tier charge covered the month leading up to that charge.

http://web.archive.org/web/20051102035134/secondlife.com/vland/cost.php

The problem is that it acknowledges that their implementation of the directive does exactly the OPPOSITE of what was intended by governments, and makes residents less competitive, but then they don't _do_ anything about it.

In other words, they now know that they are kicking us and are doing it anyway.

It is because the VAT was not designed with micro-economies in mind. It's designed for real world brick-and-mortar imports, and the usual digital services with the 2003 edict. It did not contemplate games with their own economies because this thing didn't exist on that kind of scale in 2003.

Who is kicking you? LL or your own governments?

Correct. But, Yumi, it really should be the European citizens doing something about it. Contact your representatives, let them know that this tax leads to unfair competition in a virtual world like SL, lobby for changes in the tax law. This isn't LL's job, it's yours.

But I'd like to point out another bit of corporate doubletalk on LL's part, or so it seems to me...

In the blog, they say that they've been absorbing the VAT up to now, but can't anymore due to the growth of the European SL segment. But, VAT is a *percentage*. As the number of users grows, revenue grows, VAT grows...but the percentage of revenue taken by VAT remains constant. So, if LL was able to absorb this cost within the current tier structure, WHY do they now say they can't? It's not due to having more customers, that's for sure.

And so we are back to Square One on this. Many of the early howls of complaint said that LL was lining their pockets, rather than paying the tax. I think they were half right. LL is passing on VAT to the EU tax collectors...but they've decided to, in effect, increase your tier so they can line their pockets better. By breaking out VAT as a separate charge, instead of simply increasing your tier, they've managed to take a lot of the heat off themselves and dump it onto the EU tax collectors.

And people say LL doesn't understand business...

It's not LL's problem to fix that -- it's the EU's.

Well corpoate double talk and just confused communications are indistinguishable. They've had confused down for years.

If they were operating at a LOSS, then even if it was a percentage it would still matter a great deal.

Considering their profit margin most likely isnt over 20% .. its highly likely they were.

Charging VAT now or next month is really silly about arguing about, LL is stuck charging it. The greater thing is for the people who will get charged VAT and run a business in SL keep to keep it operating. SL is now big enough for the tax man in the EU to take notice and come looking for their cut just as they do with any business or consumer purchases. This is the same as in RL so any one making money in SL and not reporting those earnings be they EU, USA, or whatever country, better report the income to the tax man and pay your taxes. As such, many L$ incomes in SL for selling trinkets to renting/selling land better consider that the tax man wants his cut. The hit for people who live in the EU, they’re going to be at a disadvantage by as much as 25% just because of the taxes in the EU. Someone will want to be out of the EU, sell/rent at a price advantage the EU residents can’t match, and put a huge pressure on EU businesses in SL just because of the tax situation in the EU.

As for it being too costly to absorb, the math will show why it is become that. Back some time ago when SL was newer, most of the residents were not from the EU and for arguments sake let’s say 10% were in the EU. Taking a high end of the VAT %, 25% VAT paid for becomes 2.5% tax on what LL is getting in total EU and non-EU sales. Now move the % of EU residents to 40% of SL residents and that same tax now becomes 10% (figuring 25% VAT on EU purchases) on all of LL’s sales. That’s a far greater hit and not one you want to keep taking.

Yes and no. I mean you're right that it is the same % that is being diverted. But I think it does make a difference what that amount is in *absolute* terms. If you are diverting 10k a month for VAT, that doesn't make a big dent. If you are diverting 200k per month, that does make a big dent because you can use the 200k more than you can use the 10k. Yes, it's still the same % of revenue, but once the # of EU subscribers/payers reached a higher level, the amount being diverted was just too much to ignore -- it was no longer "de minimis", in other words. I think business make decisions all the time to ignore/cover small amounts of this and that -- if they grow to large amounts in absolute terms (regardless of the %), it becomes a different issue.

They aren't lining their pockets any better than they were pre-VAT. They are preserving the lining. LL isn't going to profit from charging this ridiculous tariff. It only hurts their business. But that's the price of compliance. People need to get over it. Remind yourselves that you get this wonderful universal health care and all that. *sings the Smurfs tune* La la la la la, la la la la laaaaa.....

No, it _is_ LL's problem to fix it, because the EU's laws work fine in all other cases.

As I've posted before - 90% of other "middleware" businesses, who make it their role to facilitate money transactions between businesses and customers, deal with this very simply. Since they're taking credit card payments, they have to ask the customer where they are. If they are in Europe, VAT is added to the customer's bill, no matter where the recieving business is. That means that US businesses can't undercut EU firms for EU custom.

On the other hand, because the EU business can produce legal paperwork to show it is collecting VAT on its sales, it can VAT register and have VAT removed from its supplies. That means that the VAT doesn't have to be part of its prices (since it doesn't need to collect it in order to pay the VAT on its own supplies). So when a US customer wants to buy, they can pay the lower price without VAT. So the EU business can compete against US businesses for US customers, too.

As I say, 90% of the "middleware" firms, who facilitiate financial transactions between customer and business, work this way.

But for some reason LL has chosen not to. Instead, they use the L$ system. As a micropayments system, that's a great idea. But combine it with all the doubt and unsureness and legal stuff to make it so that if LL deleted L$1,000,000 from your account then you can't sue them because it wasn't worth anything, and it's ruined, and now that is biting LL back. EU businesses can't collect VAT because LL won't technically allow it, and that means they can't VAT register either, so they lose out in the international market.

As you see above, the EU laws contain explicit provisions to prevent this, which have worked for every EU business and every other payment processor on the web.

_It is only LL's systems that are causing this problem._

These "middleware" firms DO NOT deal in a micro-economy. The rules of the micro-economy are what make this difficult. And if you wanted to apply VAT to in-world transactions, as would be the logical next step, it would only make the game EVEN MORE expensive for Europeans because the rest of the world would have to pass on the cost to you. The bottom line is that your damned tax is a huge suck that raises prices if people want to do business with Europeans. That is a protectionist scheme that works well in the real world. In SL, it's a different environment and it screws you. Sorry, but that's the truth. SL != RL, but RL affects SL. Sorry that it bit you in the ass, but that is the cost of compliance.

Nope.

It is NOT the responsibility of LL to ensure that Euros get the protective benefits of EU laws *inside* the world of SL. Don't like the way it works? Complain to Brussels or leave SL. Frankly that fact that these laws are coming back to bite Europeans on the ass is quite entertaining, and is a delicious irony and a lesson in the "law of unintended consequences" -- a law that Brussels should heed the next time it cooks up another overextended regulatory or tax regime.

Don't like the fact that this is messing you up in SL? Get Brussels to change the rule so that it doesn't apply to SL.

How can you even pretend to justify this?

Most of LL's costs are in the United States. Their facilities in California and Texas. They do not get to claim US based costs against their VAT.

So the Vat is almost Entirely a Tax on LL doing business in Europe. For you to assume that LL should pay it rather than the customers is showing an overwhelming sense of entitlement.

You don't really believe that, right? They grandfather SIMs for 195 USD, and I'm 100 percent sure they don't get into red numbers doing that. Heck they give SIMs for half the price to charity and educational institutions, and you don't believe for one minute they go into red numbers with that, or are you really that naive? I think those half-price SIMs are a nice indication for the real costs - LL gives them to charities and education at their own costs.

I think Yumi is suggesting that LL make the Linden a real currency so that EU merchants in SL can collect and remit VAT on their sales to offset their VAT paid to LL on tier. Currently not possible because Linden dollar transactions are "exempt" from VAT.

Even if L was a real currency and VAT was implemented, watch the economy fall apart - because all of the small businesses here will do the same damn thing as LL (or any other rational business) and pass the VAT on to European customers anyway. It raises the prices for Europeans, making the game less feasible to play.

Among other things. It would also raise a host of other problems in the US if the Linden were a real currency.

I don't see where you're getting this from - non-Europeans _don't_ business with Europeans don't have to pay VAT. No-one should _ever_ have to "pass on" VAT - it should be collected once from the end user, then go to the taxman, and that is it.

Here's how it would work. I'm a European who wants to become a land trader on SL. I buy an island and register for VAT. Because I am registered for VAT I don't have to pay it on business supplies, and as I'm going to resell my whole island, I can claim it as a business supply. That means my tier for the island will be US$295, which is just the same as it would be for an American. If an American wants to rent half of my island, I can charge them US$147.50 plus profit, just the same way a US business could. The American doesn't have to pay any extra money.

However, in order to be registered for VAT, I have to agree to collect tax from European customers. So if a European wants to rent the other half of the island, I charge them US$147.50 plus profit plus 17.5% (or the appropriate tax level for their country), and then at the end of the year I show my records for this and send the 17.5% to the taxman. Because I am not paying VAT on the island (due to my exemption), I'm not forced to add the 17.5% to my price in order to pay it on to LL. The European customer pays their VAT, but American customers are unaffected, and the EU business doesn't lose out - although the customer might do.

See how it works to create _exactly_ the situation that people here are saying the EU should be in?

The way it works _now_ is that I _can't_ register for VAT, because I _can't_ agree to collect tax from European customers. So what I have to do instead is to pay VAT on the island and then pass that on to customers. This means that I have to pass it on to every customer, even if they're American and by rights shouldn't have to pay it. This is exactly what VAT registration would _avoid_.

Allowing Europeans to register for VAT = more even competition - which means, more choices, and more competitive prices for Americans too.

LL have said that SL is a business platform. Every other business platform on the web deals with this....