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

Payments between european companies are VAT free; private persons pay ALL the time VAT !!

Not to mention that you can't actually pass on the cost which is what economics dictate you should do if your client and/or the provider were in the same country as you. If you tried to do that you'd be out of business within a month or two I'd guess so they really get you coming and going.

Payments from a private person to a company is VAT added yes, payments between two private persons are free. Payments between companies are VAT included but the companies can deduct it against their own incomes.

I'd argue that it isn't fair at all to make non EU Residents subsidize VAT and it wouldn't make sense for LL to shoot themselves in the foot by scaling their prices for VAT, I'm sure they know that they'll lose customers from this but that being said by even the longest stretch I don't see how anyone can blame LL for VAT other, and here's the caveat, than by willingly subjecting themselves to vat by creating an England office and of course stumbling (which considering the bureaucratic hurdles isn't entirely their fault) in implementation. If anything I'd say that Ll probably deserves some thanks for covering the taxes for the EU residents for so long otherwise you'd be the one paying those taxes off and not them before whatever the cutoff date was for that.

Good point. That or euro

You actually have been paying VAT since you started SL. (Except when that was before 2003, when the 'electronic services' EU ruling came into effect)

Till about half 2007, LL didn't bother with paying the EU. (Most US company don't give a hoot about EU rulings, they're not in the EU...)
Then LL started (psrt) their billing from the UK. (IMHO: Mostly because of the much stabler pound sterling, making a nice profit on all those US$ balances which aren't actually in US$...)

They didn't do their homework though, and were backcharged by the EU for VAT taxes since the 2003 ruling.
LL decided to absolve these VAT costs. This basically means that all EU residents paid LESS for all the services than non EU residents till 2007) EU residents paid (a lower) price + VAT and non EU residents paid just the LL set price. But before half 2007 both paid the same amount. (Yes, this is a mind switch that LL first, and now we have to make

After this moment, LL started doing what all other companies doing business in EU do, and charge VAT directly on top of the original price. (One of the reasons everything is so much more expensive for EU residents). The main reason being that with the huge userbase in EU, LL could no longer 'afford' to pay the 15-25% VAT taxes from their margins.

-=>THAT<=- is a very good point.

And as for the economic impacts, the cold facts are that since VAT started to be charged on SL, I consumate VAT% less. So it does have an impact on LL as I am rather sure that this is the truth for many others from EU as well.

That is a very good summary Damanios, taking exchange rates into account wouldn't British residents at least (2:1 exchange rate approx for USD -> Pound Sterling) still have a discount because of the exchange rate, 265 L$/ 1 USD is 132.5 approx / 1 Pound Sterling, and yes I am aware it is not exactly two to one but it makes the math much easier while still getting the point across.

LL expects you to drop your premium account (They're mostly legacy)

I don't agree with your reasoning though.
1. Any transaction has to be charged VAT for by EU law. Land, tier and Account are separate LL sales/transactions.
2. Buying and selling L$ are currently not VAT charged. (LL sees itself as just an exchange service). They should charge VAT over the 3% commission though. I'm not sure if they do.

it is in the UK, HMRC do not see payments made entirely within a virtual world as payments for services that are subject to VAT, ergo there's nothing to claim back.

Exchange rates don't give you a profit or loss. Only inflation or deflation of the coins involved.
You could reason that with current decline in US$, EU consumers are in a way compensated for the VAT costs when dealing with US based companies (purchases)

In my experience the decline of the US$ for (SL based) EU businesses has had a bigger impact than any VAT charges on their bottom line though. (Certainly in my case...)

Like I posted, it seems to differ per business and country. And possibly even per tax auditor or accountant you ask It's simply a not very clear cut situation. (I've asked dutch tax auditor, and he actually had no clue...)
Tax law is very unclear on the matter, if you mix and match the rulings on 'bartering', 'electronic services', 'exchange services' etc. into the hodgepodge you need in SL. It's simply mostly still unknown territory.

And remember, i'm not just talking about the transactions in world. The sales of L$ on Lindex (where actual money is involved) is still to anonymous users, which could be EU residents.

On the risk of repeating myself: Either LL is only providing an exchange service, in which case they should clearly state the nationality of the 'buyer' on Lindex. (And offer the seller the possibility to charge VAT if applicable).

Or they aren't and any exchange is a transaction with LL. (In which case they should officially charge VAT on L$ purchases themselves.)

If i look at my account statements, they do specify all L$ sales, but not as a sale to another party than LL. This makes it a specified account statement/bill TO LL. Not a report from an exchange service. (Meaning, EU businesses are tax exempt on the sales US<->EU business).

Oh I agree with you Damanios on the complications, and a clever business would either charge by paypal or find other ways to offset VAT, but an inworld only business, ran by someone in the UK who has a VAT number, could find themselves in for a hefty tax bill.

There's no way Linden dollar transactions can be tracked accurately for VAT purposes.

Well, much as I sympathise with the Europeans who have to pay VAT, I'm not particularly inclined to subsidise y'all. And if you get lower tiers fees while we still pay full price, that's exactly what would be happening.

The same amount of money is ending up with Linden Lab. If your government wants to discriminate against its own citizens, tax-wise, that's between you and them, and none of anyone else's business.

Technically, if you buy something from me in SL, I'm every bit as legally obliged to remit VAT back into the EU as Linden Lab is, whether you pay me in US$, L$, or cowrie shells.

The only difference is that I have no business operations in the EU, I don't ever plan to have, and I know from precedent that the courts here in Wichita would have a good laugh over the suit if the EU ever tried to sue me for the back taxes. So I don't bother.

The only difference between me and them is that they are in the EU, so it's enforceable, and that the transaction's a lot more visible. (And, well, that they may care more about being in compliance, anyway.)

Simply not true.

5 pages so far, and the only Linden response has been a reminder to stay on topic? Not exactly the discussion I was expecting.

On what basis?

On the basis that not all services are VAT applicable.

On the basis that there are limits and thresholds before people need to charge VAT.

Which affects which goods and services I may need to charge VAT for, and when I may need to start remitting VAT for them (bearing in mind that those thresholds apply to your total revenue, not just your SL one). However, last I checked - and I'd appreciate a cite of that HMRC ruling, if you have one - there's no blanket rule that says that goods and services I provide suddenly become zero-rated or exempt just because they're provided and paid for via a virtual-world intermediary.

The tax authorities may not bother pursuing - for now what are mostly fairly picayune amounts, and transactions that are hard to trace, but I'd submit that anyone doing any level of serious business in SL who thinks that being a sole trader in a virtual world immunizes them from physical world tax law is batting on a very sticky wicket indeed. Meanwhile, I'll surely be putting my L$ income on the books, thanks.

That's why we have to ask for your patience, as we'll be tracking and participating in this conversation over the days this thread is open for comment --

I personally have been in several different meetings today, so I haven't had much time to participate very much yet.

Also, my own knowledge about VAT is basically zero, but Zee will have more to say at various points in the next three days!

Please don't take my small post asking that everyone stay on topic as anything other than what it says --

Glad to see you here joining the conversation!

Thanks!
-- Katt

I have letters from HMRC, my Member of Parliament, and a government minister that all state that the current position of HMRC is that transactions that take place entirely within a virtual world are not services that are subject to VAT (at this moment in time).

What potentially stinks here is, In the UK, we pay VAT on our line rental, VAT on our broadband services, now we have to pay VAT when connected to a system in a non-vat country? We pay VAT on any system we purchase, on the electricity we use to power the system, on any servicing and upgrades.

Then I rez a few prims, glue them together and set them for sale at 100L$, I either have to absorb any VAT to be equal in the market with other prim gluers, or charge more as I have to pay it (17.5%), when I draw my potential profits out. I have to turnover in excess of £47,000 a year (thats roughly $90,000+ USD) before I can become VAT registered to claim back VAT on my expenditures? When I convert our VAT 'liabilites' they amount to less than 1,000L$, thats about 3.5 USD or £1.75, They wont accept cheques.

Katt, are you really shure that the most of the european residents who are concerned from the vat believe, that Linden Lab didnt uses this amount of money so solve their own causes?

For me im unable to believe that LL this precharged taxes transfer to the concerning governments from where the participants around europe come. In my case, ive asked some ppl which i know in real life who works at several governents tax offices, if they know that Secondlife respectively LL has payed vat taxes to them. They all said me no, we dont heard about such a practice or have received moneys. I would suggest for LL's reliability, you present us a bill which states that LL has payd this VAT to all concerning countrys respectively that the European Union in the foreground (as you stated concerning the start of VAT in SL) has received moneys AND ALSO has REQUESTED such a practice. Internet services are not affected from value added taxes or have you heard that Microsoft per example must pay for their webservices in Europe? Or have you ever boght something thru a website and they added you tax for internet services?

I predict the most of the affected residents would agree to such a tax if you can prove us its a kind of legal matter.

And i predict that a minimum of fairness between LL and residents is necessary and not more then civil to avert such cases like this one.

Dont take this lines personally, its simple my thought and my knowledge about the behavior of foreign companies.