VAT: Discussion w/Zee Linden July 31-Aug 03 2008

You are responding to a point i didnt make Cristalle - I gladly pay VAT if legally required to do so and leave it in the hands of LL to know what they can or cannot afford. (Read back in this thread)



Once again Cristalle, this is not about tax, it's about business and pricing. If you are so intransigent on this then you really need to take issue with the basic precepts of "doing business" by any US or other global company - virtually all of them adjust costs in this manner in one market or another.



Its actually a reasonable and well-embedded tax - its the application in this instance by a disinterested LL and its advisors which is divisive. They've allowed a precedent.



Hmm, I've not seen any EU poster requesting that LL "subsidize" their SL experience by increasing the price for other Residents.

That aside, I repeat - it serves no purpose to typefy a legitimate thread of discussion in such subjective terms. Remember, LL proposed an open DISCUSSION, not a finger pointing argument conducted with folded arms and petted lips

I am not playing a game of semantics. You can gloss over it as "business and pricing" but we all know what the specific issue is about, and that is the tax, which as Zee stated before, is something that they do not believe should be paid for by the population at large.

You think your tax is reasonable, and that's fine, but do not ask for LL to include it into the standard price paid by everyone as a matter of "business and pricing" which will result in everyone else paying more. The tax equalizes businesses on LL's level, not people playing business inside of a business. If you're okay with pricing being discriminatory based on locality, then what is the problem with your price being higher because your costs are higher? If the VAT was not significant, I think LL certainly would have absorbed the cost. But 13 to 25% of the cost? I don't think anyone serious about business would eat that.

No, of course no one from the EU has asked us to "subsidize" their gameplay - not in those terms. But any suggestion to absorb the cost boils down to exactly that. I don't know how many different ways it has to be stated for that to sink in. The bottom line is that there is no answer that is going to make you feel good short of your tier price paid include VAT, and yet having your tier price remain the same as everyone else's.

The only way this would work would be if they had an all-European grid so that you didn't have to worry about the rest of the world, and could be competitive with each other. But I think that would be a loss to the grid as a whole. I enjoy the diversity that comes with the global population. I just do not enjoy paying your taxes.

Then, I' do ask that 'you' to do exactly that. I am not in EU, I am in a country that charges VAT but I am fortunate that LL have not singled us out.

What I love about SL is that it is a global, level playing field; we are separated by time not distance, by preference not borders, by culture/language not by prejudice and the latter is only a problem if we wish it on ourselves. SL is unique, but is far from the first to have a global appeal, and unless some one wishes to correct me I know of no other MUD/Online game provider that is either charging extra for Euro Players or (as could be construed) subsidising the US investors.

LL must decide if they are global and set prices accordingly or if they are a small time US upstart that are willing to rest on the laurels of having created the demand and wait for European and other global players to take over the market.

It is your choice really; divide the costs equally, including the costs of the expansion into Europe, or watch your own investment in time, and money, sink along with SL as more broadminded worlds take over.

Personally I would vote for a truly international SL, but due to my time zone most of my friends are European and if they jump ship, I jump too, after all the return on my investment is in friends made, not L$ earned.

LL provides a service in relation to virtual land - basically glorified web hosting

Prime example: 1and1 internet which operates both in the US and the UK and is a huge hosting service.

Prices in the US for their business package MS Hosting $9.99 a month
http://order.1and1.com/xml/order/MsHosting

Prices in the UK for their business package MS Hosting £9.99 a month (with a notation at the bottom that states £11.74 Inc VAT)
https://order.1and1.co.uk/xml/order/MsHosting

Now here's the real kicker, in the US the business package gets 250GB web space and 2500 GB bandwidth for the business package, in the UK the business package gets 4 GB web space and 40 GB bandwidth.

So lets just be thankful that LL isn't using 1and1's pricing model in relation to how they charge tier and VAT for their hosting service or people in the UK would be paying a whole lot more than they are now!

Please tell us how you feel about subsidizing toothpaste, cars or sodas so that other countries can afford them. You pay a higher price for all those goods than a brazilian or a nigerian does. That's not fair, you should by writing to congress about it and picketing in front of the white house.

How do you feel about the fact that your tier is subsidizing translations of LL's website or the SL client into foreign languages ? that's not fair, you shouldn't be subsidizing languages that you will never read for people that will never even be able to talk to you.

We're not demanding subsidies, we are simply asking whether LL is going to finally act as a global company that addresses numerous international markets, in terms of language, support and pricing, or whether it is a US service that happens to be accidentally open to international users.

As a sidenote to this discussion: pricing is not a financial issue, it's a marketing issue. Unfortunately, LL has a "software engineering" corporate culture, and as a software developer myself, I know that engineers despise marketing. However, if they want to be a global player, they'll have to wake up one day and smell the coffee (which has been boiling away for quite some time already). They need to act professionally about marketing SL as a product aimed at customers instead of a showcase of programming prowess. The technical stuff is great, but it's not enough when you reach a certain critical mass. This is one of the reasons I am putting lots of hope into M Linden, because he has a marketing background where Philip was an engineer.

On the other hand Eve online charges $14.95 for Americans and 14.95 Euros for Europeans. At one time this would have meant, Americans were technically paying more because the European price includes VAT.

Now it means Americans are technically paying less because of the exchange rate.

Different things cost different amounts in different places. Sales tax in Los Angeles is over 8%. When I go home to Hawaii it's 4%. Such is life. I think I've seen every permutation possible in this forum to allow those subject to VAT to avoid that increased cost, from asking that the liability be spread to all SL residents to asking LL to continue to absorb the expense. The first is obviously unfair, and the latter is not only unfeasible, but amounts to the first in the long-run. LL would have to pass the cost along to all of us.

At the end of the day, it's the VAT nations that set the rules here. Someday non-VAT nations will also wake up to the taxable opportunity of SL. What happens then, do you want to help all the American SL residents pick up their tax bills? Does that sound good? After all, we are the largest segment of SL, and the impact of taxation on our SL businesses would be very serious to the in-world economy. How about that deal-- we help you with VAT now if you promise to pick up the tax bill for us, when it comes? Yeah, I didn't think so.

LL was paying your VAT for a while, it seems. I'd thank them for the freebie and move on. As Zee said, SL is not just treading water-- they need cash flow for development. I, for one, think that SL has made great strides in just the last six months. I look forward to seeing what comes next.

I won't go over again how it's wrong because it's been done to death here but it's just wrong. LL hasn't introduced discriminatory pricing here the EU government has and LL would be setting discriminatory pricing if they fixed their prices and gave into the blackmailing of the residents here saying give us free money or else (which is essentially what lowering their prices amounts to) we'll leave and take our money with us. It doesn't make any sense from a company standpoint for them to slash their costs for only a select group, and I don't agree with the argument that increased European business would make up for absorbing VAT, and it doesn't make sense for U.S. residents to have pay 15-25% more than the residents of EU countries do just to make up for the fact that 15-25% goes to the utterly worthless and corrupt government in Brussels (I have absolutely no problems with Europeans btw just with the EU government).

The example of cars or shoes or whatever does not work btw, cars and shoes etc... are products, we're talking about a service here, shipping around deeds to real estate or hiring a law firm in London from New York (or visa versa) I think would be a better comparison since those are services. Unfortunately though there is no exact comparison since LL is currently one of a kind, a game, a world, an economy, a service, a product, international, national, global in scale.

/me raises his hand

I know the answer and I think everyone else does too, a big resounding NO and we'll get European nationalism and probably a fair amount of racism (I know America isn't a race but countryism doesn't sound right) against Americans for trying to tax Europeans for being able to use SL.

A parallel could be drawn to the pre-revolutionary days when Europe was trying to tax the US without giving any rights in return and the US rebelled. Now we have a U.S. company taxing Europeans and the Europeans rightly or wrongly depending on your opinion are rebelling and have either left or are threatening to leave because they think they're being treated unfairly. King Phillip was even beheaded although not with the guillotine but in the public square of the internet filled with peasants with pitchforks and this time I guess the rich landowners didn't side with the king.

Besides your numbers being so wrong, that kind of remark is derogatory and unnecessary. We don't need this debate to be a nationalistic flame war.

VAT is paid to national tax administrations and is incorporated in national budgets, where it pays for health care, schools, roads, defence... It does not go to the EU government. It is not the fairest tax in the world, but we are not going the change it.

Setting regional prices doesn't mean that LL has to absorb the entire cost of the VAT. It means they are free to set the price they want for the markets they want. It means they get more flexibility and an opportunity to better serve their customers. It means that they could, for example, increase european prices by 5% or 10% in order to share the cost of VAT. They could also make up for the loss by charging a LindeX fee for converting the L$ to non-US$ currencies. It opens the door to many more subtle arrangements than simply slapping VAT over US$ prices like it was some kind of sales tax, which it is not.

European VAT is not bolted onto a product price like US sales tax, it is an integral part of the public retail price. That is what EU consumers are used to, and the main reason americans misunderstand why europeans are so upset about the way LL has handled it. It's a cultural divide really.

To help you understand, in Europe, when a product (or service) costs €10, the variation in VAT rates throughout the EU means that the vendor's margin is tighter in the 25% VAT countries than it is in the 15% VAT countries. That is something that is generally accepted and companies take that into account when they set their regional prices for the EU. It may sound crazy, but nobody in Luxembourg complains about "subsidizing" Denmark's taxes.



It's an online service, just like many others: WoW, EVE Online, eBay, iTunes. There are many precedents. I picked material products as a comparison, because those are familiar examples, but it works just as well for any online service like software, insurance, banking or web hosting...

All of these have been successfully doing business on a global scale, in many foreign markets, for years, without frustrating their customers. Same service, different markets, different prices.

I won't provide a recipe of how much the price of SL tier or membership should be in €, $, £ or L$. Of course it has to take into account costs, margins, taxes and exchange rates. It also has to include cultural differences and general customer satisfaction.

I'm just stating that it is LL's job to adapt their offering to the international markets they are addressing. Either that, or stick to being a amateurish geek-driven startup tech company operating out of a San Francisco basement, because that's what they look like in the business world.

Terra I'm not going to quote since it would be an enormous quote but the issue I see with that though is that companies like Ebay that have servers in those countries actually have to pay for in those countries or in that region at least which makes it worthwhile for them to change prices based on those costs while still making a profit. For LL other than one office in England (which is the crux of the whole vat issue with LL it seems) they have no European resources as of this time so it makes no sense for them to essentially slash their own prices just for the supposed benefit (and that is arguable) to the in world economy because of the arguable increase in European customers.

Well, if the VAT does go to individual nations for health care, schools, roads, and defense, at least you know it's going to good causes, which need to be funded somehow, by somebody. Granted, the U.S. has helped out with defense in the past.

First of all, the sole reason LL is 'having' to charge European Residents VAT is because of LL's ill considered decision to have a physical presence in the EU (Brighton UK). Something that, considering the very nature of LL's core enterprise seems both unnecessary and utterly contrary to LL's entire working philosophy.
After all, you don't need offices in Brighton to employ people in the EU!
No, someone decided to do that without any thought of the consequences. Now every European Union citizen is saddled with those consequences.

As for LL 'having' to charge VAT on electronic purchases, even if they didn't have that wretched Brighton office. Sorry, I frequently purchase items and services from American providers and have never been asked to pay VAT.
And in that I'm including hosted servers and bandwidth - exactly what LL provides - where I spend considerably more that I do with LL (though it must be said, LL's services, looking at approximate storage space and bandwidth, are excruciatingly expensive by comparison, never mind a reliability level that would put me out of business if it were shared by my other providers).
But then of course the other American firms I deal with don't have pointless European offices...

On a related issue, anyone who's been here long enough will remember that the first 'gambling machines' (scripts actually) in SL were in fact developed by... LL.
Another example of blindly rushing in with neither thought, planning, nor responsibility.

As far as the burden that LL has placed on EU citizens by placing themselves in the ridiculous position of, on the one hand insisting that they are subject only to US law, while on the other insisting they have to comply with European law, what it has done has stopped any further expansion of my SL property holdings dead. Because I, like most other Europeans with property based in-world business simply can't compete.
Net result for LL? LL looses.

Furthermore, LL's continual, and here I'm going back years, inability to provide a stable business environment has caused me to decide that it's simply too risky to invest anything - time, money, work - in attempting to run an SL based business again.

One wonders what chance SL ever has of meeting its stated goals of being a viable business platform for anyone - large or small - with the sort of track record they have established?

Finally - WHY are we even discussing this? The decision was made, in typical heavy handed LL fashion. Those of us who were running viable land based SL businesses were forced to either close down, or loose money. What's to decide?
Why even mention it, let alone open this discussion?
If you propose to level the playing field, fine, just do it.
If not, all you are doing is rubbing salt in fairly fresh wounds.

I for one fail to see the point.

Oh, one last thing. Why don't I use my VAT number to claim my VAT back? Simple, there is such a thing as a 'VAT threshold', and I'd need to earn more that I was earning in SL to make registering for VAT worth all the hassle of doing quarterly returns worth while.

Of course, LL may by this time, have discovered the VAT burden of that Brighton office to be more trouble than it's worth too. In which case, I don't have a shred of sympathy.

The point I'm trying to make is that the US users arguing that it would be unfair for Americans to pay more because LL were paying the EU users' tax for them, doesn't actually come into play. LL would only _need_ US users to do that if the absorption of the tax drove the remaining income (to LL) of a sim below its running cost. Beyond that, LL can make less profit per sim from European users, and it just... makes less profit per sim. It doesn't need to make the lost money back from elsewhere, because it doesn't _need_ that money, the costs are already covered. The sim is still "in the black", just slightly less in the black. And if the alternative would be, for the sim not to have sold, that's a better option.



Many software companies, like Steam, RegNow, and similar, will charge you VAT on purchases inside the EU. It doesn't make a difference whether the firm has an EU office or not. As I mentioned earlier, the theory was that the EU would block involvement of European banks in, or EU stock market trading of, US businesses if they did not charge VAT.



Not just by LL - by Philip Linden!!



I don't know if you have another business with a VAT number. But if you don't, you can't _get_ a VAT number if you only trade in SL, because since L$ aren't real money, you can't declare those transactions. The only transactions you could declare are your LindeX sales of L$ for US$ - and those aren't affected by VAT. Plus, there are some rather weird rules that apply. For example, you can't claim VAT back unless you have some European customers - which would mean that if an island owner happened to have all American tenants for a few months, entirely by chance, all their prices would have to be put up 20%.

So you think LL should only make just as much money as it costs to keep the sims running?

...that's purely cosmetic. They're both taxes based on the value of the good in question - the difference you point out is just that in the EU, they're included on the price ticket because they're generally monolithic within a single country, while in the US, they're not, because they can be different even between cities, or within a single metro area. The nature of the underlying tax is exactly the same.

(A better argument might be that in VAT regimes, resellers and VARs pay VAT on the selling price of goods they sell and reclaim VAT for the goods they purchase, which balances out, whereas in the US, they usually have a "reseller's certificate" that means they don't pay it in the first place, which is an actual difference of implementation, but it's still fundamentally the same tax.)



I submit that lots of people don't complain about lots of things, but that that is not a sound and valid reason for nobody else to.

That's gross margin, not net. They not only need to pay for their running cost, but their proportional share of the fixed costs of the entire company.

I have read through all of the comments here, some good ideas, and some typical, " I'm alright jack, its your problem "comments, and replies from Zee and other Lindens, it seems to amount to just one thing.
Thats the way it is, LL let you have your say, LL will just carry on exactly as they were.
the replies were merely justifications of the policy, no sign of it changing, its not even worth commenting on, I started this with my questions to M on the original blog.
I was actually looking forward to seeing some good answers from LL here.
Sorry to have wasted my and your time people.

Justification of policy? How's this: your countries charge tax on SL; other countries do not. You have a tax burden; others do not. No, the rest of us do not want your taxes hidden in some kind of re-pricing scheme or paid by hacking away at the profits LL uses partly to improve SL for all of us. We do not really care how subtly the VAT tax is incorporated into whatever else it is you're buying back home, unlike our sales taxes, which are just piled on top for all to see. Someday we will be taxed by our respective countries on our SL activities. When that happens, we don't expect you will want to help us meet our tax obligations.

You'd think you lot were the ones sitting on a devalued currency. Yeesh.

As a reminder, to get to the downloadable account information, go to SecondLife.com, log in, and go to your Account page > Account Statements for the downloadable PDF.

You may also want to check out your Account History on that page.

Thanks!

-- Katt Linden

Even as an American who could probably use the dollar for currency if I was paid in Euros or better yet Pounds Although I agree with it it's somewhat funny just because it's on a forum based around a world with a currency that is purposefully kept artificially devalued by LL. I absolutely agree though, I haven't done the math to back it up but I'm pretty sure that even after the inclusion of vat and of course the standard transaction fees for EURO > USD or GPB > USD trading European residents are still coming out on top because of the weakness of the dollar, I believe for the GPB at approx 2:1 instead of getting 275 L$ for 1 USD they're still getting that same rate but it it's costing only 50 quid (50 pence or .50 pounds if you'd rather) so they're only using half as much as us Americans when buying L$.


I think the real crux of the issue lays with the sim owner or owner of multiple sim who has no reason to buy L$ for the most part and no reason to transfer money in however they still have to pay their tier that is paid to them by their tenants which means that they have to transfer it out to USD and then pay the tier in USD + VAT which I'll agree sucks, and on top of that can be fixed with a simple change to allow tier to be paid in L$.

Admittedly as suggested by some people you can have a non EU resident take care of billing however that requires someone you trust to technically own the land and also is cumbersome to deal with in terms of records keeping and just generally a pain. European residents also shouldn't have to resort to such hacks (I'm surprised no European residents have decried it on principle alone yet)

Umm ok.... I hope you Lindens are having weekend break, there's a lot of reading for you and Zee to catch up on since the last Linden post and hopefully a lot worth replying to.

Incidentally thanks for the comments on that Monty Python blurb Katt, needless to say I had a few too many rum and cokes that night beforehand

Thanks to everyone who commented -- well over 300 comments and 9,652 "views" already from readers!

I hope that you have enjoyed this discussion as much as we have.

It's a rewarding chance to really open the floor to you, with no worries about that 150-comments limit on the blog, so that no matter what time zone you're in, you had a chance to post your thoughts in this 72 hour conversation.

What I appreciate most is a chance to read your concerns and ideas, and to listen to how you're feeling.

I hope it has been valuable to you to have Zee Linden's listening ear too, and that his many comments and answers have been interesting and useful for you.

I think I can safely say we're likely to do this again, this "three day" Forum Discussion. I look forward to our next conversation!

I'm closing this discussion thread. (It'll remain here to be read but since I'm calling it a night, I won't be available for further moderation tonight, and we've continued talking a bit over the planned "three days" of the discussion.)

Thanks so much for your time and participation!

-- Katt

My mistake, I shouldn't have actually closed the thread, I should have instead noted that Zee Linden and I would not be participating now that the three days of the active talk have passed, but that if you'd like to continue talking about VAT, please go ahead.

Thanks!
-- Katt

Considering that the participation you and Zee brought to the discussion was minimal at best I don't entirely see the point since this is essentially the same as a random RA post, the only difference being that it had more exposure.