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

I'm in the UK. I presently own a 1024 sqm parcel. I would like to own more land - maybe 4096 would be nice. I used to own 1536 until recently but it didn't cost me $8 in tier per month, it cost me $9.40. By the time you multiply that up through 2048, 4096 and beyond, it becomes a real burden. I simply can't afford to buy more land because I can't afford the tier fees.

So it comes as no surprise to learn that EU based residents of SL are either tiering down (like me) or selling up completely. It must be a headache for LL.

I agree that, if it's necessary and legal for LL to collect VAT from EU residents on behalf of the EU taxman, then it should do so and we should pay.

What I don't really understand is the maze of conflicting tax rules that clearly weren't formulated to apply effectively to a virtual world. It hardly comes as a surprise to find that the taxman is wallowing in the wake of technological developments *sigh*

But this situation won't be resolved by LL and I don't hold out much hope that the beaurocrats of the European Union will manage to get their heads around the puzzle of taxing online activity.

Seraphina

If we are to consider what it might be sensible to ask LL to do to help us with this problem, we need to understand it's scale.

Can a Linden please tell us

1. What is the estimate of LL's (ie our) total VAT bill per annum at current activity levels ? $0.5M? $2M? Alternatively, what did LL actually pay on our behalf in the most recent time period (3 months?)? We can multiply by four.

2. Approximately how many premium members are there within the EU ? 5000? 50000? I think this info may be already published, but if so a link would be nice.

3. Very approximately how many EU members have registered their own VAT number with LL, and are therefore taking responsibility for their own VAT ? Is this just 20 people, or several hundred ?

Knowing these numbers, we can avoid making unrealistic/unreasonable suggestions for what might be done, or at least attempted.

Do you (and the other people making this argument) have any idea how it comes across over here?

You all live in democratic countries. Your tax policies are exactly what your --

(And that's a collective you - some of you, as individuals, may well disagree with your government's tax policy, but in democratic countries that leaves you with a short list of options and I think we all know what those are, eh?)

-- politicians, who you have voted for over the last decades, have implemented in accordance with the democratic will of the people. And now, once you notice that these choices you have made disadvantage you versus us in the global economy, instead of going back to your government and demanding that things be changed so that you are no longer disadvantaged, you're coming to us and demanding that we disadvantage ourselves so that you can compete.

Would it even be *possible* to come up with an proposal more likely to generate the stereotypical American response that you guys are a bunch of whinging bloody equality-of-outcome socialists who would rather everyone else fail than do the work to succeed?

And, frankly, the stereotype is right. It's not our job to compensate for your high tax policy and make you competitive again. It's yours.

There are tariffs, duties and barriers all over the world in terms of doing business as I'm sure you know and they are intended to protect local business.

The legislation that covers VAT on electronic services is intended to prevent an unfair playing field. In Second Life however it creates the exact disparity it was designed to prevent. When the legislation was introduced a virtual world economy like we have in Second Life wasn't envisaged.

However you're correct, the people to complain to are the politicians.

Surely there is some reason LL opened this forum, other than to watch us fight with each other. There's obviously a huge need for information from them. It would be nice for them to join us.

As for the relative dumbness of comments about the VAT itself, right back at you for suggestions that those of us in non-VAT countries subsidize your taxes.

And the suggestions that tier be paid in Lindens. If you don't see that inflation disaster on the horizon, well, no comment...

Yes, I know. I stipulate that I oppose all of them on the grounds that not only are they a prima facie infringment of the freedom of association and contract, but also, courtesy of the laws of economics, manage to hurt everyone else in the local economy more than they help the industry in question, but I acknowledge their existence.



Specifically, the EU ones. They broke it; they get to fix it.

This is an interesting idea, actually communicating wihtout the post limit, although I see less of the lindens then was suggested I would. Also it seems an odd opening topic, VAT is long settled and affects only a portion of the population, Why arent we talking about things that affect ALL of us?

How about we discuss the tier pricing and why LL is pushing out so much land that it forces people to sell their sims at a loss or rent them at cost? mine are set to rent at barely over cost and sitting empty. Im not alone. 27000 regions, 60000 people, can you start leveling with us about the next steps so we can preapre ourselves for the changes or must you keep it under your hat so we will keep buying more sims, committing to even more tiers, as you drop the setup fees even further and maintain the high tiers that no one will be able to cover?

And what will happen when opensim becomes a part of the picture and theres a free sim out there for everyone? Shall we start taking our losses now? How about you tighten up the people to islands ratio for a bit so we can perhaps make some headway on all these losses before that happens?

just a thought... talk about sometyhing important and relevent and current.

This argument is bogus in this case.

I think it should be pretty clear that the issue here is the effect of VAT on the land market in SL, in terms of the custom it provides to LL and the effect it's having on their business model.

In this case the answer is obvious. If LL will not absorb VAT then European landlords will not buy islands, because they can't. Tenants will never accept the higher rental prices that result, so the islands won't resell. The exchange rate is a bogus argument - whatever the exchange rate is, EU tenants can still get their land more cheaply from US landlords, so they do.

Previously this was no problem for LL. If they were to absorb the VAT cost (by charging Europeans only US$238.95 per month per island, so that the cost with VAT is US$295) they would lose that money. Now, however, it's becoming the case that islands are simply failing to sell at all, because the non-Euros don't need any more, and Europeans can't buy them because they can't resell them competitively when their costs are greter. So LL keep their US$56.05/month - but then the island is abandoned and they lose that, plus another US$238.95/month they could otherwise have had.

Now you could argue that it'd be unfair for US users that European users contribute less to LL per island, but that isn't quite as bad as it is the other way around. Since VAT came in, European landlords have had to deal with tenants basically flatly saying, "transfer the island to an American, or I leave, because I'm not paying the higher price". But, under the absorbing system, nobody in the world would say "transfer the island to a European, or I leave, because I want part of my money to go to European governments instead of to LL!"

All of the arguments in the world about the morality of tax and politics won't change the business reality of the situation. The only alternative would be for LL to allow tier to be paid in L$, thus enabling the same VAT dodge that the American landlords use; or raise L$ to a full real money equivalent, thus enabling European businesses conducting business in L$ to VAT-register (and even that would be problematic because you can't do it if you have no European trade - so a business could do a great trade in SL, and then be hit with a large bill for back taxes because it happened none of their customers were in Europe!).

As for "the EU politicans broke it so they have to fix it" - easy to say, but the chance of them actually caring is zero. Moreover, what actually breaks the system is the the inability for EU businesses in SL to VAT register, plus the ability for US landlords to bill EU tenants in L$, thus avoiding charging them VAT on their rent (which they would otherwise have to do due to the same law). This would solve the problem, albeit by creating a "grim equality" - EU landlords could rent to EU tenants on an equal footing because _everyone_ would have to pay more.

I think this thread is becoming too specific and technical... and is ignoring the core issues.

These are the most important points:

A) Nobody here is going to change EU Law.
B) Expecting Americans to pay for our problems is unrealistic.

However...

A) The VAT problem makes SL unplayable for most EU users unless they are greifers.
B) It does damage American interests - business growth and sales figures have been retarded by the VAT implementation.

==========

Conclusion :-

As we are currently in a possition where we cannot change anything - the only solution I can see is to give Europeans some from of advantage that is not linked to the value of the Linden.

For example - giving Europeans exclusive rights to Open Space sims would have allowed some European businesses a chance to survive.

As it is impossible to level the playing field in an equitable manner the only solution is to encourage diversification in this way.

I'm not sure what other artificial balancing measures could be enforced but I'm sure there are plans in the pipeline that could be implemented in inventive ways to our benefit. How about a European-only 6-month headstart on the next generation of servers for islands - or something like that... This way Americans would still hold the price advantage but people in the UK could gain customers through a unique selling point.

I pay VAT if I buy something inside CEE, if I buy something outside I pay the local taxes where is the seller. I don't understand why if I buy something from USA i must pay an European Tax....

Don't worry, Athanasius,

Most of us Europeans are fully aware how absolutely unjust this would be, to expect others to pay our taxes for us.

We would never propose or even consider such a preposterous suggestion.

However, in view of the very confused and inconsistent rules and laws applying, we would have preferred LL to have taken what legal steps they could to protect us from it if possible.

Maybe closing european offices would do it? Who wants them at such a cost ? Maybe paying tier in L$ would do it ? Maybe getting our land from anyone else rather than LL would do it ?

We want to discuss possible helpful steps with LL and with each other. Rightly or wrongly, it seems to us that LL just threw in the towel on our behalf, without putting up the slightest resistance, or even telling us the bout had started. And maybe unnecessarily. That doesn't please us much.

If this thread does nothing else, when LL begin to contribute, we should at least get a better idea of what might still be do-able within the law. And an idea of whether we are being fair to think badly of LL past efforts on our behalf.

Technically closing the European office wouldn't make a difference. The EU directive applies to all US businesses.

But how can an EU directive be enforced on US businesses? There were some suggestions, but the standard one was that US businesses who didn't follow the VAT directive would be banned from being traded on European stock markets or otherwise gaining access to EU financing.

The problem is, of course, that this doesn't work when a "business" can be one person who owns a lot of islands and has never really needed corporate-level financing - something that the EU people didn't predict existing.

Wow this is just like reading the blogs, not a linden comment in sight!!!!

I think thats your aim here Katt, keep the negative postings off the blog and here out of sight!

You promised a discussion, I've just spent an hour reading half the posts then got bored and scanned the remainder for a posting from you or the knowledgeable linden for some sort of reply.

SO DO WHAT YOU GUYS PROMISED AND GET INVOLVED


I believe EU Citizens cannot compete in business here in sl when profit margins are often less than the VAT applied.

You need to re level the playing field .

Perhaps you start by charging EU citizens in their own currency so avoiding transaction charges incurred if paid by bank, credit card or pay pal?

Then you can set a fixed rate for membership and land tier in local currency which will be a touch lower than at present, VAT included. Then when your US$ sinks even lower you can rest happy knowing that your income from Europe is stable!

Oh and can't wait for the forum "discussion" on TIERS, and TRAFFIC........

Because to do so, they would have to raise their prices to everyone else to cover your tax burden.

Of course it's normal to want others to help offset your tax burden but can you honesty say you think it's fair for me to cover the extra taxes you pay (which pays for benefits my country doesn't provide from tax collection) but you then don't help in any way paying for my heath insurance, which we pay outside of our tax system? I cover this tax for you, I pay higher fees in SL but then I still pay 100% of my own heath insurance outside of SL on top of this..

If this was to happen, you would be having your tax burden that your country insists on charging being paid by OTHER people. I can't believe anyone can really feel this is fair to the other people in SL outside of VAT countries.

Why havent you simply formed a US partnership and participate as a US entity? Such an entity could, by proxy, create US orginated accounts, proxy your connection if required, to make it originate in the US, purchase land under US tax laws.

Need a well established US company to form it for you? Give me a jingle and lets discuss.

Because the partner would probably expect money in exchange for their help - and then you have higher costs again..

VAT is unfortunately a way of working / business life. We all pay it, if we purchcase an item from the local shop to L$ in Secondlife. No matter how long you debate VAT or how long you talk about it. It will still be there, you will never ever be able to remove it. Like the sun, moon and stars, up one day, cloudy the next, bright the following day. VAT is a part of life. Thats it. We will all have to simply accept it or don't purchase anything. Not sure if its an opinion I am giving or just a way of life statement, I have not really got an arguement to be for it or against it, but we will all have to accept it.

Your lowest eu VAT tax is 15%. Many arrangements of scale have an operational profit of much less. You could get this done for 5% plus costs.

No, Rus, I don't see it. Please explain.

At the moment I convert L$ to US$, then leave it there to pay my tier (when I have enough). This leaves the L$ in circulation, having passed to another resident.

If I pay it direct to LL instead, they can sell it on the Lindex themselves (assuming they want the money supply unchanged, ie no extra inflationary or deflationary effect). Doesn't this have the same effect ?

Where is the cause of inflation ? Surely LL are trading all the time to control it, and this is just one more trade ?

Didn't the give up the old "we never trade on our own account" years ago, so that now it is their primary control method ?

Am I missing something ?

All this talk of maybe getting tier paid in Lindens. Obviously it is irrelevant unless they are charging us VAT on Lindex transactions. Are they really doing that ? In both directions ?

That's what the rest of you seem to be saying. If so that's absolutely appalling.

Had I better go log into my account and find out ?

Someone tell me it isn't true......

no - surely not....

I should clarify that I mean no offense to the majority of reasonable Europeans out there, who aren't pushing this particular line. But there does seem to be a peculiar hard core of people who seem to be going straight there, and them I do have a problem with.

(As ever, it's the few that get the many the bad name, I fear.)

And -



- really, even though I don't have a dog in this hunt, I'm pretty much right behind you when it comes to some measure like this, if it can be done workably.

Anyway. It occurs to me that actually there might be something that I could do, relatively easily, to at least ameliorate the situation if Linden Lab cannot or do not. Already having a US-based company that's moving into SL services, it seems to me that there wouldn't be any problems in arranging to purchase sims on behalf of EU-based clients, turn over effectively full control of the sim to the client, and simply handle passing the transaction through from the end client to Linden Lab - in exchange for, say, a 5% surcharge (we have some operational overhead, and are after all a for-profit business, but 5% has to look better than 17.5% any day; and as a US-based company with no EU subsidiaries or plans for same, we would not be worried about the EU Directive), and the maintenance fee being paid a couple of months in arrears.

Note, at the moment I'm not saying we *are* going to do this, but I'm certainly seriously considering the possibility. If anyone's interested, send me a PM here or email [email=athanasius.skytower@arkane-systems.net]athanasius.skytower@arkane-systems.net[/email] .

Ha! I knew it was so simple someone else would think of it already.

It is easy. As long as fees are to pay in USD, VAT has to be applied. So someone who wants to pay his fees with money he made in SL, like a landlord, he has to sell the L$ on Lindex to have USD in his account, and LL will not take 295 USD but 295 USD plus VAT. So instead of having to sell roughly 81k L$ to cover 295 USD, the german customer has to sell roughly 96k L$ to cover 295 USD plus tax.

IF LL would allow DIRECT payment in L$, without the detour via USD, they would not have to add VAT. They would just have take the 81k from the account.

I dont actually think there is any need of this, use a proxy connection to create the account, i think LL may actually determine your residency by the ip you use a majority of the time, if they do (didnt I read that someplace?), Then proxy your connection to a US based server, buy land under that account with US banking info. Pay for your (why would you need one?) premium account with that payment info. All legal, all above board, pay VAT on your profits when you take them.

That said, there appears to be a few Americans willing to support the process on the cheap if thats what is required.

A very simple reason why they will never accept $L, a good part of their income originates from the fees to exchange $L to USD. Don't even go there, it ain't about to happen