VAT Answers and suggestions

Ok we've grumbled and joined in the passing around of information and figures on how unfair this is. Now what? Do we rely on LL to come up with solutions? Or just roll over grumbling into our cornflakes? If we are to appeal for something it should be soon or the system will just get accepted and entrenched therefore harder to create change by negotiation and lobbying, our only real tool besides voting with our Euros (which is radical and solves little).

So I've been trying to brainstorm some solid, realistic solutions to ask for while watching group chat, so not all of them are my own ideas, however I say up front that I propose asking LL to take tier in L$ as the crosspoint of being reasonable, achievable and effective.


Things we know:

1) VAT is not going away. It looks a valid charge from what I've read, so there is no hope of a legal challenge anytime soon.
2) This hurts LL. It costs them to process it and they lose revenue from downgrades and lost tier & sales, future losses, a flat economy and reductions in goodwill.
3) It creates a barrier to competition for EU SL business. Primarily affected is Tier. Private island tier increased by £250 (US$500) per year, overnight.
4) Purchases of L$ from Lindex are exempt from VAT. All L$ to L$ transactions are also exempt.


Assumptions I can make:

1) LL needed a haven away from the US$ and by choosing a European based system, it increased tier, land and membership fees to some 30% of active SL residents.
2) LL may quietly be feeling guilty so may be pro-change to some degree.


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Good and bad solutions to VAT.
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1) LL should absorb the VAT themselves.

Notes: Likely to be unpopular with LL.

Pros: Solves the problem instantly.
Cons: Will cost LL a LOT of money, money that they dont want to pay or they would have done it already.



2) LL should remove their billing office from EU.

Notes: Moving billing on the scale of LLs must have taken some long term behind the scenes planning and I cant believe they were inept to the point of not knowing about EU VAT laws.

Pros: *May* allow LL to again ignore EU VAT.
Cons: Something LL doesn't want to do. Will take time even if they agree.



3) LL should allow tier payments to be made in L$.

Notes: Lindex purchases are exempt from VAT. Would allow savvy EU businesses a way to compete again. Everyone can still pay tax on land purchases and memberships, plus some will still opt to pay tier in US$ leaving plenty of tax money for Brussels.

Pros: It's doable. L$ to L$ transactions are exempt within existing tax rules. LL only has to chose to organise their business slightly differently.
Cons: LL would have to reshuffle their economy. EU avatars number more than any other continent (some say up to 30% of active) which must be treated as sink. It would make the economy a little more volatile.

3a) Variation on a theme. A minimum threshold on tier payments, set at say, a 1/4 sim and larger. Those can be made in L$. That would be seen as targeting help at the people that VAT hurt the most, business owners, while still retaining VAT payments on smaller private plots and smaller commercial. Less volatility but a more even and healthy economy for businesses.



4) LL should allow Tier payments to be made by 3rd parties.

Notes: Untying tier payments from credit cards would create an external market of non EU tier paying and land buying companies that have no requirements to pay EU taxes.

Pros: Doable. Lower costs to Europeans. e.g. 2.5% for the USD at our end, the payment company would cream off maybe 3%-7% as a fee and we get a healthy savings.
Cons: Potential fraud by sham companies when the market was young.



5) LL should accept GB£ and Euro payments via FREE BACS/CHAPS/Interbank transfers.

Notes: With billing on UK soil why am I charged initially 2.5% by my bank to buy US$, then to get swiped for the VAT and LL transaction charges.

Pros: Saves a small amount that is usually not noticed.
Cons: Does not address the tax issue. Does not help the purchasers of LL services that pay by cashing out L$ from inworld.



6) Lobby our deputies in Brussels to change the rate for metaverse purchases.

Notes: Even at a basic rate of 5% it would be bearable.

Pros: Does not involve LL directly although they *might* help.
Cons: Brussels takes 6 months to wipe its nose. Could take years, a LOT of money and time, and still we might lose.

6a) Lobby your local parliamentary candidate to name an internet savvy finance minister from your country that you can write to about the problem.

Pros: Creates a channel of communication. May get the minister on your side and provide intel on how best to approach the issue.
Cons: Politicians deal in letters, you have to write real letters to get anywhere. Takes time and ultimately solution 1) applies



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The DO-Nothing options.
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7) Wait for the US to remove internet sales tax exemption from US ISPs.

Notes: It is unkind and mercenary to wish bad upon your competitors but it would even the field a little financially.

Pros: Would take no intervention.
Cons: Only 6% is talked about plus they may continue the exemption.



8 ) Cry in our beer and leave the metaspace to leaner more hungry nations.

Notes: I'm not going to qualify that with pros and cons, but I suspect thats what many will end up doing.


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My Say
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Tier is the main stopping point to being competitive globally. Covering tier is the minimum a business has to do to stay in profit therefore I suggest we all ask LL to help us with that. Our alternatives are to let the rest of the world own the land and we just rent it.

There are estate lands out there. Rent or buy, most estate is island with 30% more tier to LL to start, plus the estate owners have to make a profit. Estate land comes with other challenges than just higher fees (the occasional dishonest landlord that kicks you off, the incompetent that doesn't pay his tier one day after you renew your lease etc etc), thats almost a tax in itself. Are Euro residents now relegated to paying for overpriced land that's never really our own?


Asking LL to accept tier in L$ is reasonable, they can chose to make what they like an internal or external, there are no laws to say how they run their business, as long as every penny of the external US$ based amounts are paid on to the VATman, then everyones happy.


I have only one email, Robin Linden is the one representing LL on this issue, I would urge us all to write to her at [email=robin@lindenlabs.com]robin@lindenlabs.com[/email] and ask her to apply your favorite solution. My solution is obvious by now but even if you choose your own, please tell her why it would help us.


Thank you all for reading.

Open SL Europe and be done with it.

Your assumption (2) is questionable. Corporations do not feel guilt. LL has no motivation(that I can see) to take any action whatever. They're complying with the law, and they're making money. Unless one of those things changes, why should they do anything?

I like your suggestion of lobbying your EU representatives. Taxes...any taxes...act as a brake on commerce. Relatively new forms of commerce, such as the internet, should NOT be taxed. In that way, they will grow faster and become a more valuable source of revenue later on.

My personal feelings on taxation are much stronger and extend farther than this one issue. I think that most governments have been allowed/encouraged to tax their citizens far too much, for far too little benefit to the citizens. The European social welfare societies are some of the worst examples, but the U.S. is no shining example either. Over here, there is a growing movement to scrap our cumbersome tax structure in favor of a single national sales tax, called the Fair Tax.

I wish our European brothers and sisters good luck in their fight, but I've got issues much closer to home to attend to. I won't say any more here, except to remind everyone that every well-intentioned government program costs money; that governments don't make money, they have to extract it from the productive elements of society; and that there is only so much juice in any given apple.

Something definitely has to change. I live in a State where we haver every form of gambling available and the state is still broke. Taxes and fees keep going up, but the money never seems to get to the intended recipients. Our "Temporary Wartime Income Tax" has lastedalmost 70 years. I'm not sold on the Fair Tax plan as it is presented but someone has to figure out a better way.

Some of your evaluations are also incorrect.

The opened office is not the cause of VAT. It's the fact that the end user is inside the VAT related area. I still strongly theorize that up until recently LL was not under obligation to collect VAT based on the volume of transactions and only recently surpassed the limit under which they were required.

While the thought into these ideas is great, many of them are actually a lot more costly in the end, which could be passed on to you and possibly US (and the rest of the world) users, which would piss off a helluva lot more people by passing on the fees from a tax that we cannot control or lobby against. Only YOU can do that as citizens. We cannot lobby against VAT anymore than you can vote for our president. So essentially, in your (collectively) demand to either A) get more for your "troubles" or B) have everyone else help pay the VAT, you are going to seriously alienate a lot of people who are powerless. You are penalizing those that have no choice and no voice.

Profitability is relative. Technically, EU users were in much more favorable financial standing over all, because this game is in USD and the transfer rate of Euro was much higher than the cost of changing the currency. So while it may be true you are not profiting as much anymore, there is absolutely zero way to tell who's "getting the most breaks or making the most money". If it were strictly and solely up to the transfer rate of L's to USD to E for European members versus L's to USD, EU actually came out ahead. We didn't bitch, it's OUR economy, it's OUR country that has made a weak dollar. We know where to direct our anger. We didn't beg LL to give US breaks and benefits simply because if someone were to buy 1kL worth of items from me and 1kL from French Joe Schmoe, Joe gets more in his pocket than me. I can do a financial breakdown on this if you wish.

Truth is, there are hundreds of thousands of owners/creators out there and since no two are alike, there is no way to compare that X owner in Europe would still be making just as much as Y in the US if it weren't for VAT. X owner could not make anymore compared to Y, etc. There are too many variables to make any one statement fact.

Ok you raise some fair points, however our stong pound only gives us input confidence and it works both ways. Running a business with the intention of cashing out meaningful sums is quite daunting because when scadloads of things inworld costs less than a packet of cigarettes ($10-11US equivalent) doing anything for more than just fun money is hard work.

Wheras you have it a little easier to make something that is worth cashing out. Not anyones fault, just economics.

However now with costs up 20% over what someone in the US pays, its even HARDER to make any meaningful amounts.

Send that to Brussels.

Well if the VAT plan suceeds and the EU manages to get the world to pay VAT on all these goods and services it sells to Europe...

Companies will have to charge Europeans more. For whatever they sell.

Its the only way it can be done.

So be it, then.

its not a fair system.... even Robin states that in the blog, but enless the EU changes its rules. They site that its to give an even playing field and was caused by AOL..... yes people America OnLine *lol* they felt that they couldnt compete due to the strenth of the Euro against the Dollar so taxed the Europeans for the electronic service (as im lead to believe).

Many people believe that due to the difference in Euro/$/£ conversations and the strenth of different currency that we in europe have been lording it up for sometime. But we need to put it into context, the cost of living between the US - UK is significant, US users may buy a car for $10,000 here in the UK ... thats £10,000 or $20,000. A small 2 up 2 down house in the UK (a we MEAN small) can be approx £150,000 compaired to a significant difference.

Economy is always relative to where you live. Im sure countries with an even weaker currency would complain even more. The fairest option would be to abolish the tax alltogether as rather than creates a competitive market it actually punishes the end user for living in place. I should also hope that certainly in the case of SL, as thier is no european competitor and LL IS the only game in town that this system doesnt level the playing feild between RL companies it only unbalences the playing field between users ... RL people with jobs..incomes...families etc.

I think this is backwards. AOL were NOT charging VAT and were taken to Court in the UK in about 2003. AOL won, because the law as it stood did not require them to charge/pay VAT. The law was changed, whilst the case was going through, and AOL then started to charge/pay VAT. The EU Directive came into force in 2003 (maybe 2004?) well before the recent strengthening of EU currencies against the dollar.

The Court case, and the change in EU law, came about because the European ISPs felt they couldn't compete against AOL because they had to deal with VAT and AOL didn't.

I just looked up Barrett Homes prices in my area as your figures looked cheap to me:

2 bedroom houses from £214,500, 3 bedroom houses from £249,995, 4 bedroom houses from £393,995

"3) LL should allow tier payments to be made in L$."

This on the surface seems to be the neatest most elegant solution and also benefits some other non-Europeans in that it takes one step out of the currency exchanges.

But going along the maxim that "if something's too good be true then it ain't" I'm led to wonder what the cons are.

Firstly, and most obvious one, would be LL accepting it. They have always taken the stance that Lindens are not a monetary currency, simply an in-world token that they facillitate the exchange and movement of. Using it as payment for tier would in my mind flip that argument over as payment is in reality for RL hardware and maintenance services, i.e. the servers. It would be hard for LL to say it's not currency and/or an asset when trading and exchanging it would then account for a large part of their profit.

Secondly, if they were to go down that route there is the problem that they [LL] then control the money supply. So do we ask that tier is a fixed amount of Lindens per month/year or do we accept that the Linden is a floating valid currency and that our tier payments reflect that? LL would no doubt still fix their prices to the USD, but the Linden could, and probably would, fluctuate quite wildly against that in a true market. Imagine the flood of Linden activity if all European land owners suddenly switched over to paying in Lindens. To preserve or stabilise the economy LL would surely have to step in and artificially alter the market by increasing or decreasing the supply of Lindens into the market. There is also the other scenario that if they control the money supply they could easily increase their profits by some manipulation of the money supply done to their favour.

I'm not an economist but I would be interested to hear from someone who has some understanding how this would impact on the economy and game users. I too thought the Lindens for tier was the cure all for this. The more I think about it though the more I think it is fraught with dangers down the line if, and it's a big "if", LL were to accept Lindens as payment anyway.

*Drops his 2 cents in the jar - and then goes back to add 17.5% more, even free speech has gone up

There is one reason why LL will not be able to accept tier payment in L$. They are the source of supply for L$. Hence, as apposed to "normal" residents, L$ are worthless to them.

Consider the implications: Right now, they (as a real-world US company) get a certain US$ income from tier payments. If this would change, a big chunk of their income would disappear. To whom should they go to exchange their L$ to US$ paying for Linden Labs as a going concern (servers, new HW, etc.)?

Bottom line: Will never happen, IMO.

Certainly there will be economic implications taking L$ as tier. However certain limiters could be added, such as restricting it to larger sized plots (Quarter sim and up?).

That would still target VAT on small private plots and all but the largest homes, but give tax relief to medium to large business owners. Also existing EU land traders wont have to shut shop overnight if their non revenue bearing holdings are too large.


Yes increased inward payments in L$ would mean a reshuffle of how LL treats their sinks, but its not impossible. For a start, not everyone owns land. Not every EU user will pay in L$. Adding the limit above would also limit volatility.


In the end, IF LL wish to help us, its the Economists and Accountants that will make the provisions, its just getting LL to be interested in helping that seems to be hard.

No it was caused by Freeserve who were throwing a hissy fit because AOL didn't have to charge VAT. Ironically the position Freeserve were in is exactly the position EU LL business owners now find themselves in.

Points 1, 3, 5 are forbidden by EU laws.

Your presentation in point 4 is vague.
If we keep the property of the lands, the invoice will be at our name and will include VAT, however where should be the payer and the price would be increased : fees + VAT + payer commission.

If we sell our lands to another part out of EU, we become tenant or lessee and there are no warrants inside SL to protect us to be deprived of our properties.

Nevertheless, this is the solution given as an advise (only an advise) next monday by Linden.

We could go days on end about the cost of things outside of SL. I'm only speaking of which deals directly with SL. I mean, you also pay more for gas, cigs, things if that nature. But you also earn higher per capita than the US, and on and on and on.

You cannot compare RL goods to the services of SL. It does not an argument make.

I'm also not sure where you are getting that costs are up over 20%. The highest I saw was a quote of 19% (though the norm is 17.5%) and that does not take into account Euro versus dollar.

And what do you mean by we have it easier to make something worth cashing out? You mean making money? As I said, economically, you were doing far better than Americans before. If anything, based on rough comparison, this only raises your per fee, around 6-7% when taking into account the footing of the Euro versus the USD. It's still a raise yes, but not nearly quite as big as some are making it out to be when complaining about how much more the rest of the world is making.

I already pay a 2.5% exchange fee to my bank when I buy a service from LL, in the past that was a minor irritation, now thats 2.5+17.5 with the VAT.

So thats why I say its 20% over and above.


And yes lets take the cigarettes again, (if i smoked) I'd have to earn 11 US dollars worth of lindens to buy 20 cigs, you only have to earn what 4 or 5 USD to buy premium smokes. We could compare petrol, electronics, even nasty old McD hamburgers, they all cost more.

So trying to make a crust before paying VAT was bad enough, now we have to cover 20% more costs as well. Hard to do unless you have a really innovative product or are already very established.

No, you can't take cigarettes again, unless you really want to start looking at the income and poverty rates, etc. So you may pay twice as much for a service, but make 3 times as much in income. That's a silly argument. If you are seriously trying to work in a global market and make money HERE and use the cost of items THERE, you are seriously misguided. It makes for no argument whatsoever.

You pay the 2.5% exchange rate, but the Euro against the dollar at some points was almost doubled and currently (Friday closing rate) 40% higher. If you really want to break it down, you are STILL coming out ahead of Americans when it comes to cashing out.

Using your 2.5% model and 17.5% VAT:

American guy pays $200 in tier fees. That's flat USD. That, if you were to use 265L per dollar is 53000L.

VAT person pays $200 USD in tier fees. Conversion rate to get to 200 USD from Euro means you pay only 142, equally. You add on your 2.5% and your 17.5%, on 142 and that's only $3.55 USD and $24.85 respectively.

That comes to a total of ONLY $170.40 USD Even AFTER your VAT tax, you STILL break out $29.60 USD ahead, or roughly in world, for the same transaction, you only need 45,156L to do the exact same as an American would do. That's a difference of 7844L, A MONTH.

For multi-island owners, this is even bigger. So don't sit there and tell me, how much behind you are. If two people own 5 islands each, one pays only The 170.40 and the other the full 200, VAT people pay $852 USD, while the SAME service provided to an American is $1000 USD. For a grand total difference of $148 a month, or 39220L.

Hell, even if you were to pay the conversion twice (once going in and once cashing out), you'd STILL be ahead by a large amount.

Want me to apply this to a SL scenario?

VAT guy splits his 5 islands up into 30 parcels for rent.
American guy does the same.
VAT guy only need to charge 1882L a week per resident to break even.
American guy needs to charge 2209L a week per resi to break even.

That's a HUGE difference when it comes to people spending money to rent the exact same thing.

ETA: And btw, in less than a year, the Euro against the dollar has doubled from 20% to 40% overall. At what point against the Euro should Americans make a big deal about LL doing some compensation for us? You're already ahead, should we make it 50%? That would only be a few months from now. 60%? Current trends that's 6 months away. 70%? Less than a year.

No, this is wrong.

American guy, $200, 53000L... OK so far
VAT guy, 200$ = 141€ (NOT $) +2.5% = 144€ + 17.5% = 169€ ... which exchanges for $232

So the European has to spend effectively $32 more for a $200 tier than the American.

Inc

That was already addressed and dismissed in a few other threads.

If you're a EU resident running a business in SL then a declining dollar is *hurting* your income, it does not benefit you in any way.

Revenue in SL comes in L$, which is converted into US$, which pays for tier and the remainder is converted into Euro. If the dollar weakens, you make less in your own currency and if tier increase then you make even less still.

Only pure EU consumers "benefit" from a weak dollar and they won't be the ones with the most tier to pay, and the only beef there is a price increase that's potentially beyond what they're willing to pay for what they're getting.

I agree - I don't think the difference in the standard of living should have any bearing on pricing at all.

I think the VAT should be passed on to EU residents Only because its a business expense that LL has to pay for selling service to EU residents.

It shouldnt be for any other reason.


Arguing pricing based on Standards of living is crazy- theres a whole lot of countries with lower standards of living than the US and Europe.

Actually, I think we are both wrong. If I understand this correctly, your VAT is in USD. (At least the way people are shouting for the option to pay it in Euro.) Which does end up changing it a bit, but I'll admit, I was wrong.

But you are also missing the point (which could be cause I screwed up the math).

Dollar for dollar 169 is less than 200. (Which the OP was stating about RL costs.) While it may be more expensive as far as USD actually goes, when it comes to back to your pockets cashing out, it's actually cheaper.

I've long maintained though, that you guys and the rest of the world should have the option of your own currency. If LL wants to truly be global, it's only fair.