VAT Clarification and Extension

What? This sentence makes no sense and you need to clarify - bad editing.

Non-Europeans have to pay VAT for doing business with European customers. This is why LL is in this position - it offers services to Europeans and has to pay VAT so that, theoretically, it would be on the same footing as another virtual world developed by a European company. *Inside* SL, that is a different thing, because there are no protective rules for Europeans.

Considering this last year was the first year Linden Lab made a Profit, I certainly do believe that.

So you believe mainland SIMs are tiered under the running costs and LL doesn't make a profit on them?

I don't pay VAT to Livejournal. They are an American company. Whether I should be paying VAT to Livejournal, I'm not really sure.

There are thresholds in VAT laws. If you are in Europe and your sales are less than something like £64,000 you are not required to charge VAT.

I'd imagine international companies can operate on similar thresholds, LL hinted at this in the blog.

So it's feasible that the issue hasn't been LL ignoring VAT previously but that they've gone over a threshold. Hence why they could absorb it previously. LL has only exploded membership wise in the last twelve months, it's a whole new ball game.

No I believe that in the large picture Linden Lab is only so profitable.

When they compare expenses to revenues they have choices to make keeping their business revenues up.

Giving up 15-20% in taxes for European Land purchase and Tier fees, as well as other VAT affected items Affects that equation.

That 15%-20% might be enough to severely hurt their profit and loss picture, enough that they would be losing money on European sales.

Its the EU tax regulations that bleed the profitability of LL service sales to European residents. Not fancy definitions of what kind of tax it is.

You said LL made profit last year. Well, they claim they always payed VAT already - and they still made profit. There is absolutely no sense in changing that - especially taking in mind the negative overall effects on the SL economy.

And, really bad part: they let and STILL let run their customers into an open knife! They knew for a very long time about VAT, heck, they even payed it as they claim. But they impose the change without ANY forwarning. And still have the same prices noted everywhere without any mentioning that this are *not* the end prices.

You said LL made profit last year. Well, they claim they always payed VAT already - and they still made profit. There is absolutely no sense in changing that - especially taking in mind the negative overall effects on the SL economy.

And, really bad part: they let and STILL let run their customers into an open knife! They knew for a very long time about VAT, heck, they even payed it as they claim. But they impose the change without ANY forwarning. And still have the same prices noted everywhere without any mentioning that this are *not* the end prices.

There is a distinction between cash flow and profit that people unfamiliar with business or finance may be unaware of. At a guess, LL is probably has been getting positive cash fow from the cut-rate sims even when it was taking a loss on the bottom line.

I'll try to explain.

Cash flow, to put it simply, is income after deducting direct business costs you have to pay as you go to stay in business, like salaries, raw materials and electric bills, but before a host of financial items that also have to be taken into account but don't necessarily get paid at the time they're deducted. Profit is what's left over after you do deduct these "financial" items.

One of the biggest of these financial items is often depreciation. This is an allowance you make when you work up your financial statements for the fact that your business assets are going to wear out, break down, or become obsolete and you are going to have to replace them. Basic idea is, you're going to have to replace your car, so you set aside money each year you expect to use it. When the time comes to junk the old heap, you've got the cash to replace it. (Like anything involving accountants and tax collectors, all this gets VERY messy in practice, but the fundamental idea is simple, and sound.) LL, with its server farms, probably has quite a bit of depreciation it has to carry on its books. There are lots of other so-called "non-cash" items, like debt amortization, bad-debt reserves, etc., etc.

So, the cut-rate sims probably cover what it takes to keep the lights on at Linden Lab, maybe even with a little left over to put toward the non-cash stuff. And the cost of replacing the servers down the road then gets shunted over to the folks paying full freight. Doesn't mean LL makes a profit at the low rate - profit is what's left over after everything is paid for, including the tax man, and is what the owner can use to spend on, say, expanding the business, or, if he's lucky, real-life neko catgirls.

Yay! Someone understands!

Since LL cant claim any reasonble remittance in the European only VAT chain scheme - it functions just like a Sales tax and Tariff to a US company.

They made a business decision not to offer what amounts to a 15-20% discount to European Residents to make up for this VAT imposed by EU countries. Thats their call.

Are you claiming to know their Profit and Loss better than their accountants?



They made a bad decision not to issue a warning, which they basically have admitted since they changed the policy to include one.



Thats becuase the prices listed are still just the American Prices. In the US when a sales Tax is applied its applied to the Sales price after. You know what your tax is in your own state.

Now I realize people in Europe dont do it that way - but realistically - its just cosmetic packaging.

there is no functional Difference in

X price +VAT = final cost

and Y price (which consists of X+VAT) = final cost

Its just a Psychological preference. That is all.

Absolutely. It is not like they are seeing the tier on the account history and finding a different charge on the credit card bill. Granted, it could stand to be clearer, but the point remains that X plus VAT still equals Y (which consists of X plus VAT).

They ought to restate the costs for EU residents to comply with their laws. I suspect they are loathe to do that because it creates the appearance (which the EU's member states want) that the merchant (LL in this case) is charging more, when in fact all they would be doing is charging the same rate and adding VAT to it. I suspect they like the idea of charging everyone the same "price" (leaving taxes aside), but yet again the hamfist of European tax and pricing law comes in and requires the merchant to take the "pricing hit" by marking up the "price" to include VAT (or electing to simple eat the VAT, which, to be honest, is not a viable option over a certain threshold of cost).

Well it sounds like they will be better off advertizing a different price for European Residents, since after 50 years of VAT they are accustomed to the price including tax. It will only hurt future sales if they don't change.

But its not any different - its the same thing, it wont mean they pay more or less.

they could just have a link with a disclaimer

(Prices on this page do not include European Value Added Taxes, for a European Pricing guide click here)

I think it would be best to have separate pricing pages if they go that route. I doubt they want to do that, but I think EU law requires it, if they are interested in complying with EU law (which many EU users seem hell bent on ensuring, despite the increased administrative cost, which will increase the cost of SL for everyone, Euro and non-Euro alike, but oh well...).

I'm not sure this is true. International companies are allowed to reclaim VAT and LL do have an office in Europe anyway.

Yes so they get some offset from the Brighton office. If they did not have the Brighton office, they would likely have nothing to offset, but then again, would be much harder to enforce against. The whole thing is a bit cock-a-mamie, to be honest.

Is there a way to display a number of versions of the website at the same url, with the relevant version selected based on the IP of the computer connecting?

Oh please. We know VAT is added to prices. Many of us actually work, we see invoices, we see VAT charges. LL are going to show VAT where it's added on our bills. You seem to be under some strange illusion that we're not aware of VAT.

The point has been made many times, when we see a price that doesn't state VAT is not included, we assume it is. That means we're well aware of VAT.

I'm not sure that's true either. There are many business expenses and more than one VAT scheme to register for.

I've tried explaining this a few times in various threads, but you will never convince some that not requiring a break down of what is being charged is not due to naivity, but simply because the break down is THAT simple and assumed.

Or maybe we've been fleeced by a stealth tax all these years!?

I keeeed!

Pardon, that is *not* what happened. You forgot one tiny but important word, the word "anymore". They - according to their own words, did discount EU residents and decided *without* any warning to not do it ANYMORE. They dragged in people with "low" prices and now, when they are in and can't drop out without losing a big amount of money (at least in the case of land owners) they let the hammer fall.



I guess they don't know it - or there wouldn't have been this sudden 180 degrees turn.



They only pushed it back a month for mainland tiers after they realized that you can't charge more for a period of time that already is over. There still did *nothing* for estate owners, and there are enough who got little to no warning at all.



Not really. A customer from the EU who signs up *today* and buys land will have *no* warning that the prices stated on the website are not the end prices. The least would be something like "VAT might be added".

Well then why do (some) Europeans claim that the "all in" prices are set based on demand, rather than pricing the merchant (ie, sans VAT) price based on demand and then adding VAT to that to get your all in price? Which is it? The answer *does* make a big difference to merchant pricing.

Do you mean with regards to items coming in at something.99? So items are £9.99 with VAT included?

Not exactly.

I mean everyone everywhere likes the 9.99 prices. The key question is whether the merchant is getting 9.99 or (9.99-VAT). If it is the latter, then the VAT system is manipulating pricing, it seems to me, because merchants don't like "ugly" prices like 11.68 (ie, 9.99 +VAT). Requiring all in pricing simply means that merchants have to judge customer demand (ie, willingness to pay) including tax. Yes you as the buyer "know" that the price includes VAT, but you still hold the merchant to account for its pricing, even when that pricing has to include the fixed VAT element in it. I mean I know you are used to this, but to me it seems clearly punitive to merchants, and it saddens me that LL has to kow-tow to this silly (in my view) regime.

Well the merchant gets a VAT bill. Don't forget that this gets passed down the chain. They claim back the VAT they paid in production of the services. So they put the 9.99 in their pocket and then await the bill from the tax office which is the difference between the VAT they paid and the VAT they charged.