At around 4PM PST, while most of Europe slept, an email was sent out about a new policy at Linden Lab. Those European customers who were awake got a bit of a nasty shock:
Hello,
We have identified that you reside in a European country. Accordingly, your next bill will reflect Value Added Tax (VAT) charged at the rate specified by your country. Please note that VAT applies to all payments to Linden Lab such as land sales, monthly maintenance fees and Premium subscription fees.
If you are eligible for a VAT exemption, you may submit proof of your exemption status, such as your VAT number, here:
https://secondlife.com/account/vat_enter_id.phpIf you have other questions, please read the VAT FAQ:
http://secondlife.com/corporate/vat.phpYou can also contact us via the support portal:
http://secondlife.com/supportBest regards, and thank you for your continuing support.
Linden Lab
Creators of Second Life
According to the FAQ, the following items are all taxable: Premium account registration, Purchases from the Land Store, Land use fees (tier), Private Region fees, Land auctions. Transactions of Linden Dollars between avatars aren't taxed - for now.
The actual rate of taxation varies from country to country. For example, in the UK it's 17.5%, Denmark it's 25%. Non-European residents of Second Life, or those who lied about their location to Linden Lab, need not worry about this tax. This may give them a business advantage over their European counterparts.
Not entirely accurate about the "not worrying if you lied about your country" bit. According to the FAQ:
How does Linden Lab determine who to charge VAT for?
When you registered your account, you told us what country you live in. If that country is in the EU, then VAT is applied.
If you say that you come from a different country that doesn't charge VAT, it's very likely that discrepancies between your IP address and your declared country would get caught in our risk detection system and may cause your account to be flagged for review or even suspended.
Neat trick considering my account (if I had one) is with a US service provider, and not a European one.
this is terrible ! the playing field is well and truly tipped.. another storm in the economy...
but my guess is LL will be seeing a huge amount of non european alts springing up suddenly !!
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Oh, great! Just gets better and better, huh?!? I don't understand why VAT has to be added? As if we don't pay enough tax on everything here as it is, now our hobby is taxed too?! Just another way of getting more money out of us!!
Ok the down side: some of us have to pay a tax on the cost of belonging to SecondLife.
The Upside. Those Govts now collecting revenue from Linden will now need to realise that restricting growth and development on the internet will in turn restrict potential income streams from the net. Now as a taxpayer for the value of the service you can point out to your Govt officials and elected members how bills and policies could affect a potential future income stream for the revenue office.
The more they tax you the more they need to protect the service they tax.
But im still unhappy about paying a little more.... sigh.
It is not good..What would happen next? Avatars gathering together for a protest?
There is nothing sinister behind this move and nothing specific about taxation in virtual worlds. Please note that this does not mean that business IN virtual worlds will have to shoulder the burden of taxation but the business between Linden Lab (a company in the physical world) and a customer in the physical world (NOT an avatar).
Nearly every business in the EU has to add VAT to all billings to customers residing within the EU. This includes bills related to hobbies, too. This is nothing exceptional and more or less impossible to avoid.
What this means is simply, that Linden Lab has opened up a European subsidiary, which will handle the business with EU customers from now on.
Details here: http://otherland.blogs.com/group/2007/09/linden-lab-is-r.html
Perhaps, a new governing board should be created to specifically address a
trans national, internet based world economy. A seperate economy, a seperate
country, which avatars can be an economic citizen of.
And I want to be the first Mayor.
Cheers!
Why open up a European subsidiary? it was doing well before. As SL is not based in the EUssr why are they bothering with taxes payable within the EUssr?
Can you see the Chinese doing that with HiPiHi?
Markus suggests that it is Linden's opening of the Brighton office that has led to the introduction of VAT. Indeed, if this was a known consequence they could easily have avoided it by opening in a non-EU European country, like Switzerland or Norway.
Rather, this seems to be the result of a realisation - possibly thrust upon them by 1 or more tax authorities, who have been looking at tax and VWs for some months - that they were in breach on an EU directive.
The full text of Directive 2002/38/EC can be found here: http://tinyurl.com/2qvhto
Rather than opting for the Boston Tea Party approach, Linden (no doubt as with many other non-EU electronic service providers) have decided to conform to the directive.
Re: HiPiHi. They too should obey the directive... but then, who's going to make China do anything they don't want to do?!
Hi Aleister, this is correct. I wasn't aware that for an 'electronically supplied service' - and only for this kind of product/service - providers have to add VAT no matter where in the world the company is registered, according to EU laws. On the one hand hand this seems plausible to me (as physical goods are treate likewise when entering a EU country; handled by customs processes). On the other hand it leads to some absurd situations for businesses in virtual worlds (examples here http://otherland.blogs.com/group/2007/09/second-life-and.html)
Funny enough no other US company I deal with, seems to comply with this directive. :)
What we need to determine here is the actual jurisprudence for this EU law on the books of 2003, because all we're getting on this mainly in chat groups and forums is hysterics Googling and pasting.
We need to hear whether the EU really and truly *enforced* the law *in this way*. Surely the EU can't imagine that all American e-commerce must a) indicate what VAT would be, if it were paid on top of their regular price; b) obtain a VAT number merely because someone from overseas might access their site c) providing a receipt with all the details needed should someone happen to buy from them, etc. etc. It's an absurd overreach.
Among the reasons you have amazon.com and amazon.uk.com might be the calculation of the VAT, for example. But Eurocrats surely have some realistic grasp here, that companies outside the EU can't be expected to be collecting their tax for them.
While the UK works on the common law system and other countries like Germany work on the civil law system, still, it's a reasonable principle of international law to expect that there first be some sort of precedent-setting case where the law was enforced and applied specifically before expecting that it will then be applied across the board.
It looks like this might be what you're after: http://tinyurl.com/38hatu
Something called a "Special scheme for non-EU Businesses"