Op/Ed: The VAT Tax Man Cometh

by Alphaville Herald on 29/09/07 at 8:32 am

by Inigo Chamerberlin

Inigo_portraitYet another missive from those lovely folks at Linden Lab. On a Friday, as usual. I’m coming to actively dislike Friday eMails from Linden Lab.

What now? Well, all us lucky EU residents are now going to be charged VAT (Value Added Tax to the rest of you) on ‘all payments to Linden Lab such as land sales, monthly maintenance fees and Premium subscription fees’. Quite where that leaves Lindex purchases isn’t made clear – but whatever is by Linden Lab. You can be pretty sure those transactions will be included though.

The only way to ‘avoid’ this is to have your in-world business registered for VAT, with all the lovely complex paperwork that entails. It would almost be worth it to be able to demand correctly formatted VAT invoices from Linden Lab – except they have come up with a wheeze to get around that – or so they seem to think.

You see, IF you are registered for VAT you are issued a ‘VAT number’ by your local government tax authorities (its ONLY use is to identify you as being entitled to charge VAT by being printed on your receipts and invoices, and to assist filing and tracking. I wonder what Linden Lab’s VAT registration number is?)

Linden Lab is neatly sidestepping the EU legal requirement to provide VAT registered companies with VAT compliant invoicing and receipts by telling you that IF you provide them with your VAT number they won’t bother charging you VAT.

Sound good to you? Well it appears to be unlawful.

It’s NOT how EU VAT works. VAT is collected from the non-VAT registered at the point of sale. It’s also collected from the registered, those with a VAT number, in the same way. Then, every three months they get to wade through the paperwork, claim back the VAT paid for deductible purchases, and pay the balance to the VAT tax collection agency.

Failing to collect VAT because someone gave you their VAT registration number, and – god forbid – failure to pay any subsequent liability to the tax collection agency is actually a serious criminal offense. I hope that is not what the Lindens are proposing.

Ah, you say, but Linden Lab is sitting smugly in the State of California in the United States of America, they can’t be touched by European Union legislation. Really? Well then how come they are, supposedly, applying EU taxation law in the State of California in the United States of America? US State/City sales tax I can understand, in fact I pay it in most transactions with US companies, except the few that have no sales tax.

It’s worth noting at this point that California seems to have a rather complex sales tax structure, which I’ll be checking into in more detail on Monday, because I’m damn sure that double taxation is not lawful under international trade agreements to which both the EU and the USA are signatories. If Linden Lab is, as I suspect they are, proposing to charge me California Sales tax as well as EU VAT there is going to be trouble. Something I’ll also be checking into with my own local VAT Inspector. However there are a couple of additional issues here.

Does Linden Lab get to pick and choose the legislation applies to Second Life?

Think about it.

When it suits them, they are an American business, based in the US, with servers based in the US, and thus subject only to US legislation. Even to the point of stating in the TOS that they are a California business and therefore any legal challenge to their whims and fancies must be dealt with by a California court.

However, for some reason all that is forgotten when it comes to this latest move. NOW they are subject to EU legislation. Legislation which, depending on which part of the EU you happen to be based in, can add between 15 and 25% to your Second Life costs. Not a trivial amount when you are talking Island fees!

How very odd that they are suddenly, after all this time, required to charge their European customers an extra 15 – 25%. Everyone else includes those fees in the published prices. Is the Lab feeling a squeeze due to recent shifts in the US$/Euro exchange rate? Are Linden Lab’s margins really that thin? Of course the new VAT charges will be passed straight on to the 27 different European tax authorities – but haven’t they been doing this all along? What changed so suddenly?

Arguably Linden Lab wouldn’t be doing this, bearing in mind the huge amount of administration involved, if they weren’t absolutely compelled to – by EU legislation. Which as an American business, based in the US, with servers based in the US, and thus subject only to US legislation they aren’t, are they?. Unless of course they ARE subject to legislation from outside the US, specifically from outside California. In which case, what’s the value of their latest TOS amendment?

Something stinks in my opinion. Because they can’t have it both ways. It’s either/or. Not ‘pick the bits that happen to suit you’.

Then there’s this business of ‘If you are a business and are reselling, or adding value to our product before providing it to a consumer, you are eligible to provide your EU-issued VAT ID number to be excluded from this assessment.’

Utter rubbish. It’s unlawful under EU legislation, as I explained previously.

EU VAT is not some sort of ‘buffet’ from which you pick the bits that look tasty (the collection of VAT for instance) and reject the bits you don’t like the look of (the associated administration requirements for instance, or even, dare I suggest, forwarding the collected tax to the relevant tax collection agencies).
People go to jail, in the EU admittedly, for such things. Though maybe those California courts might take a more relaxed view of such irregularities, seeing as it’s not Uncle Sam’s tax $ here after all.

Then there’s this carrot and stick element. You have to pay us VAT – unless you give us your VAT registration number. Interesting. I wonder where that VAT number will wind up? Could it possibly find its way to that well known collector of snippets of personal information – Integrity-Aristotle?

All that aside though. And that doesn’t mean it’s trivial. There is another issue which is going to rear it’s ugly head.

Raise your prices by 15-25%, probably make a loss, and go bust

Many in-world businesses in Second life are run by European residents. The huge majority of those will NOT be registered for VAT. Believe me, if you can avoid registering, legally, you do. The threshold income above which a business is legally obliged to register is variable across the EU, but generally pretty high, around the US $ 60,000 mark, and the administration burden is huge – we all avoid it where legally possible.

However, that 15-25% overhead increase has to be met somehow… So, what choice is there? None. You raise your prices by 15-25%, or probably make a loss and go bust, seeing how slim much of Second Life’s business profit margins are.

Linden Lab has found ANOTHER way to wreck the economy

You have to admire their tenacity, nay, their inventiveness. Having failed miserably to understand the damage they caused the economy with the ‘casino ban’ – something they hinted, but never came right out and said, was caused by US Legislation – now they are pulling this manoeuvre, which will almost certainly have similarly devastating effects, and blaming the requirements of that very same EU legislation they claim to be exempt from!

I’m not going to comment further on that. I don’t think it’s necessary. The facts speak for themselves. Hang on though, it’s going to be a bumpy ride.

38 Responses to “Op/Ed: The VAT Tax Man Cometh”

  1. humanoid

    Sep 29th, 2007

    I think it’s time to change the LL logo from that swirly hand to a man attempting to shoot his foot with a .44 magnum revolver.

  2. Nicholaz Beresford

    Sep 29th, 2007

    Sorry Inigo, but I think you are wrong. Google is doing this for a long time now (they asked for my VAT ID to be VAT exempt about a year back).

    With Google this is probably related to EU Google Adwords customers being serviced from Ireland. As a German resident this would make it a business across countries inside the EU and there, with a VAT-ID, it is legal and normal, that the deal is VAT-exempt.

    With LL this now probably has to do that they have this credit card company somewhere in Europe.

  3. Joshua Perenti

    Sep 29th, 2007


    My thoughts on this exactly, with three private islands this is no joking matter! a 17.5% hike for everyone on them, it just doesnt sit well, especially when you operate as a not for profit orginisation, just for fun.

    There is somthign that doesnt add up here, ive already had a few legal peeps look at this and my RL GF works for HMRC, she doesnt think it adds up either.

    We need to get a campaign or somthign together. I believe things have already started.

    And OMG your not wrong about VAT the threshhold in the uk is £66,000 and OMG you avoid it like anything if you can, its so much hassle and normally to be totally above board requires an accountant.

    Linden Liars strike again!

    Take Care
    JOshua Perenti

  4. Justkickzazz Taurog

    Sep 29th, 2007

    Dead on the nostril, Inigo – congrats!
    It’s this picking the cherries mentality that Linden Labs displays permanently which really drives me mad. My ‘inner eye’ already saw an enormous number of lawyers rubbing their hands and gearing up for action – as surely the addition of VAT to the bills indicates business being done with EU citizens ON EU territory, so EU consumer protection laws (amongst others)can no longer be denied as it has been done previously by pointing at their status as a California based business. I hope LL has a good legal department (a fact which personally I doubt very much) – or there is havoc for them waiting. The double taxation issue may also be interesting – not only to us EU citizens but also NON-California based US folks.
    There are three options in my humble opinion:
    - They DO charge Californians the applicable tax (included in their quoted prices) and ALSO non Californians (sales tax is normally only applicable to residents of that state for purchases within that state) – hence they are billing the latter for some taxes they do not need to pay.
    - They do NOT charge Californians the sales tax …hmmmm…isn’t that commonly known as tax evasion?
    - They waiver Californians the sales tax and pay it out of their own pocket.
    The latter would surely raise some interesting discussion about fair trade issues as why – given it is done so – can’t they do the same for EU residents ?

    I would very much appreciate a follow up of this blog after you had a closer look into the Californian tax laws.


  5. Coincidental Avatar

    Sep 29th, 2007

    Lindens haven’t lately spoken about openness in communication. Age play, casinos and the lag in economic reports.

    It looks like Robin Linden lied earlier that LL is paying VAT.

    The issue not yet covered is that LL should charge VAT on the purchases of L$, because it is not a currency, has LL stated. This tax crime is yet another reason for LL to get rid of L$, as they have planned.

  6. Ian Betteridge

    Sep 29th, 2007

    Nicholaz is completely correct. If you are a non-European company which is selling goods or services over the internet to European citizens, you have to charge VAT unless they provide a valid VAT registration number.

    There are a couple of exceptions, but that’s the general rule.For example, one minor exception is that if you have a subsidiary which is a registered business in a European company, you have to charge VAT to VAT registered customers in that country.

    To be honest Inigo, this just comes across as an immature rant where you hadn’t been bothered to find out the facts, but had instead decided to claim that LL was “wrecking the economy” (what, you meant the economy they make all their money from?)

  7. Mercia McMahon

    Sep 29th, 2007

    Much of the comments here (including in the article) are just plain wrong. The EU issued a directive (a request to enact national laws, the EU cannot enact laws itself) in 2003, asking that e-services which provided no physical product (unlike Amazon, but like iTunes) be taxed not at the address of the supplier, but at the address of the consumer. The states in the EU readily enacted laws that would net them millions, while refusing to enact the directive to harmonise VAT levels. All the talk here and elsewhere about receipts, offices in the EU, and other EU law are all irrelevant, because this is a specific digital tax.

  8. Euterpe Zagoskin

    Sep 29th, 2007

    I am required only to pay VAT on goods or services which i have bought in the UK. So by implication I am being deemed to have imported to the UK from California my “services” from Linden Labs. In which case I would like LL to confirm that the US taxation of my purchase of “services” is treated as an export from the US and not subject to US sales tax etc.

    All of that said, i don’t think I am importing to the UK. As I see it, I am not importing any service to the UK by buying a SIM in SL, I am exporting myself (through my avatar) to SL (ie California) to buy it. So philosophically I think it is incorrect to view it as a VAT-able service.

  9. Prokofy Neva

    Sep 29th, 2007

    Yes, much of the article and the comments are just plain wrong.
    Guess that “junior author” status doesn’t help to check facts any, hmm?

    The Herald might have bothered to read, and then actually publish the letter everyone is getting, as I’ve done on my blog and newspaper. Here it is:

    Hello, Avatar.

    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:

    If you have other questions, please read the VAT FAQ:

    You can also contact us via the support portal:

    Best regards, and thank you for your continuing support.

    Linden Lab
    Creators of Second Life


    There is no sudden notice — the notice is for a bill coming in 30 days, in the next tier cycle.

    There’s nothing there that says, “You give us your VAT number, we won’t charge you.”

    It merely says “if you’re eligible for exemption, submit proof here”.

    Now, if this billing company is located in the UK or Ireland, then it knows about VAT and it knows its business writing that.

    If it were prepared by Americans who were clueless, possibly they imagined that “VAT exemption” works exactly like “501-c-3 exemption” for non-profit/charitable/educational organizations in the US. But it appears that it does not, as we are being told by those who actually register with VAT numbers that what they get to do then is merely write off their business expenses and thus get VAT exemption.

    In the U.S., first you’d prepare the tax return showing your business expenses, against what your tax owed is, then you submit the return, then the IRS approves it, and if in fact you can show that you are owed something, then later you get the refund back from the IRS.

    So it’s like the distinction in the U.S. between tax exemption, where you are an entity freed from taxes yourself (although not payroll taxes, for example), because you are not-for-profit, and can then offer tax deduction to your patrons so they can write off that contribution from their income tax, and the other issue of deducting expenses from your income tax that were undertaken as part of your business. So you can deduct a part of the expense for your home office, for example, if self-employed.

    My recollection is that European law on tax deductible contributions to charities is poorly developed precisely because it isn’t the private sector that governments wish to encourage to support charity and education; these social welfare governmenst believe they themselves should undertaken these financial burdens. So rather than encouraging through tax exemption, they simply tax and budget for those expenditures. It’s a different structure and one that is debatable, as it makes all non-profit work dependent on government handouts.

    The Lindens offer a deduction for 501-c-3 entities in the US, educational sims get to pay less. And they can offer this deduction to 501-c-3 equivalents overseas in theory if they exercise overseas expenditure responsibility (that means some due diligence showing they’ve determined these foreign entities really are non-profit).

    I find it particularly humourous that the always-cranky and belligerent Indigno is fuming that there could be multiple laws applying to this multinational space and *gasp* they seem to apply to some things and not to others. Well, duh. It’s a new kind of concept, going even beyond the Internet. So lots of different things are likely to be tried in different formats before a balance is found. Perhaps lobbying firms will get started to lobby to make places like Second Life a giant duty-free zone or free economic zone, the way some countries declare such areas to stimulate enterprise.

    The Linden isn’t a currency. It’s a limited license to purchase access to content within the virtual world.

  10. Lislo Mensing

    Sep 29th, 2007

    I hope that they now can send invoices on paper that clearly state the VAT and so. Up to now the email they send is worth nothing here in Germany.

  11. Prokofy Neva

    Sep 29th, 2007

    Lisa, what part of this didn’t you understand:

    “Accordingly, your next bill will reflect Value Added Tax (VAT) charged at the rate specified by your country.”

    You will be getting a bill electronically, as this is an Internet service.

    You print it out on paper if you need to.

  12. Big Dave

    Sep 29th, 2007

    One more comment, no one, not even California residents, are paying California sales tax. US federal law currently makes it illegal to tax Internet services. Californians are charged sales tax on goods only if the company has a point of sale in California. Services such as Internet games are not taxed at all. So no one is paying double tax.

  13. Inigo Chamerberlin

    Sep 29th, 2007

    You know something?

    I’ve about had it up to here with you clowns.

    Linden Lab is crapping on everyone, every day. Piss poor service. lies, outages, misrepresentation, bait and switch tactics, choosing which law they will and won’t recognise… It would be a joke, IF it weren’t costing us real money.
    And if anyone should dare speak a word against bloody Linden Lab – what happens? A bunch of spineless worms crawl out of the ground and start their spiel!

    FACT – Linden Lab is NOT compelled to charge VAT. Yes, there is a method by which they CAN, if they are stupid enough to want to, purely voluntarily.
    And that’s exactly what they seem to have done – volunteered to give MY money to the EU. Well fuck them, and fuck you all – and the horse you rode in on!

    FACT – when half the Euros in SL either go basic or leave, SL is in trouble. And so are you.

    FACT – when the remaining Euro businesses HAVE to increase their prices by an average of 20% to cover this, YOUR costs will rise too!

    FACT – I’m constantly doing business over the ‘net with US companies who DON’T charge me VAT! American companies obeying EU law? Who are you kidding? You lot must have got hold of some of the stuff they smoke down at the lab!

    I’m taking off for a bit – SL is crap lately anyway, no real point going in there, and if I have to put up with much more of this LL apologist bullshit I might just knock the entire sorry shooting match on the head.

    Somebody give me an email if things show signs of getting better please.

  14. PurplePenny Broome

    Sep 29th, 2007

    “There is no sudden notice — the notice is for a bill coming in 30 days, in the next tier cycle”

    It’s pretty damn sudden from where I’m sitting: I’ve already been charged VAT on my tier and I haven’t even received the e-mail yet!

  15. Jessica Holyoke

    Sep 29th, 2007

    Inigo, your editorials will be sorely missed.

  16. Prokofy Neva

    Sep 29th, 2007

    PurplePenny, you are shown what the charge WILL BE when YOUR NEXT TIER BILL HITS. You were not debited suddenly in one day something that ALREADY charged off your credit card.

    If you are seeing something different, fine, then say so. But this is what everyone else is getting that I’ve talked to, and seen their bill from — they are getting notice that their NEXT tier — which could fall tomorrow, 15 days from now, 30 days from now, depending on their cycle — will contain the charge.

    FACT: Indigno is a garrulous asstard.

    FACT – Linden Lab is required by law to pay VAT, and that’s why, duh, they are announcing that they must charge for it. The 2003 EU law on Internet/ecommerce services makes that clear. Organize a lobbying group and fight it, but it’s the law now. There might be some creative accounting they could do, or creative registration they could do in certain European countries, but that will take time to set up.

    FACT — No “half the Euros” are leaving SL. People are bloviating in their venting groups, that’s all. It’s like every other change — people yammer about it endlessly but they do not vote with their feet. Some will tier down. Brutally, cruelly, Kenny Linden summed it all up for us in 2005: “There’s always another guy to buy the island.” Sell your land, somebody else will buy it.

    FACT – You conveniently forget that Europeans are already at an advantage by having a stronger currency, so they already get an advantage over Americans with their purchase of Lindens, even allowing for exchange costs. And FACT those sims catering to European communities will indeed get them to pay more for rentals and shops, just like those with $295 islands and not $195 islands charge more — and get it. The market has shown it. Prices have steadily risen all over SL since its inception, as the market bears it: FACT. FACT: the Americans who are nimble might get a temporary advantage over Europeans, but since the Lindens will likely raise tier for everybody in November, not for long.

    FACT – LL wants to put its servers in Europe so that SL works better. LL has staff now in Europe. LL has an office in England and is planning more of them. This isn’t somebody e-commerce site on the Internet, it’s a transnational company.

    Knock people on the head all you want, big guy, it’s not about apologizing for LL. It’s about explaining to your knuckleheaded Europeans that if you live by the sword, you die by the sword. Want socialism? Pay for it in taxes.

    Nobody is required to keep a duty-free zone open for you to play in forever.

  17. Cocoanut Koala

    Sep 29th, 2007

    Inigo, I agree you that this has been sprung upon us in a terrible (and I believe, illegal) fashion, and that it will damage the economy and all the rest.

    But by law – EU law – LL is required to charge VAT. There is a link to this on the blog entry that someone on the LL forums suggested I read, and it explained that.

    Enforcing it is a whole other thing. They can’t very well MAKE anyone collect tax for them (and I hate that they even try!), though they can impose sanctions in various ways, from their end.

    However, LL opened up an office in England, which means they can enforce it very well.


  18. Jessica Holyoke

    Sep 29th, 2007

    I knew I forgot something.

    If I’m purchasing a Limited license right to access in-game content, then that would seem to be a digital service contemplated by the Economic Commission directive and that seems to be subject to VAT as well.

  19. Prokofy Neva

    Sep 30th, 2007

    News flash, Jessica Holierthanthou, the Lindens have real lawyers, licensed to practice law, who advise them, and they evidently didn’t find that this needed to be covered — or, alternatively, decided to wing it.

    What real lawyers do in real life, as you may come to learn, is serve their clients, and rather than try to bully and harass them with literalisms and lawyerisms to play gotcha and get their clients in trouble, they work to keep them out of trouble by trying to maneuver as best they can. That cynical attitude toward law in fact is what makes people hate them. But it’s like those tax lawyers who say that an income tax is “our first offer”.

    After you’ve bought the subscription and the server space, perhaps even the grasping EUssr understands that the pokers chips you buy are on the house.

  20. Mat Warf

    Sep 30th, 2007

    If you click “pay 300″ but get charged for more like 350, that’s bullshit and false advertising. Why couldn’t they have told us *before* this months tier period? Now I’m stuck paying a bumped up charge to Robbing Linden whether I tier down or not… probably illegal, as Cocoanut Koala said.

    While I’m sure few people will actually quit over this, it’s the kiss of death for anybody putting land up for others to rent. Anybody who bought islands or large plots of mainland with this in mind is *screwed*. That huge extra sum means they can’t be competitive.

  21. GreenLantern Excelsior

    Sep 30th, 2007

    From the SL website:

    Questions About VAT?

    There have been a lot of questions about why we sent out an email announcement to EU citizens that we will need to charge VAT, and why there was no advance notice.

    Second Life has been growing exponentially in Europe over the past six months. We consulted with a number of highly-qualified tax advisors, and the bottom line is that we must charge VAT to EU residents in order to comply with EU tax regulations. Here is one article among many that discusses our scenario. We’re sensitive to Residents’ opinions and regret that some of you are surprised, but we have no choice other than to comply with applicable laws.

    (“one article” – http://www.ibls.com/internet_law_news_portal_view.aspx?s=latestnews&id=1746)

    We individually contacted residents who would be affected by the tax and so did not initally do a blog post believing a general announcement could be confusing for those Second Life Residents not impacted.

    There is more information about the VAT decision on the website and in the Knowledge Base. You can log in with your Second Life name to see the full FAQ.

    (“website” – http://secondlife.com/corporate/vat.php)
    (“Knowledge Base” – https://secure-web9.secondlife.com/community/support.php)

  22. Mat Warf

    Sep 30th, 2007

    They’ve been paying VAT all along, this has nothing to do with VAT, it’s just that they want to bump up their profits. Confirmed as fraud:


    “Therefore, Linden Lab Research, Inc. is committing FRAUD. Imposing tax as being added on top of prices, which already included tax, is pure and simple fraud.”

    Click one price, and billed for another price? With no way to cancel the deal? Their retarded capitalistic practices will bite them in the arse.

  23. Jessica Holyoke

    Sep 30th, 2007

    yes Prok, we know you hate lawyers and especially me. But your point here is?

  24. Jessica Holyoke

    Sep 30th, 2007

    I just want to revisit the things Prokofy said in two ways.

    First, I can see the danger in his argument on how the Lindens have real lawyers with real clients and if they don’t want to add VAT to the Linden dollar, then they either know something we don’t or they are winging it. But what about not drawing scrutiny to the Linden dollar and having a foreign government determine what precisely it is? That could also be a concern of the lab’s counsel.

    The danger to Prok’s argument is that he’s promoting what is good for the lab is good for the resident argument. So even if the resident is stuck with a tax bill, its alright because the labs will survive and that’s good for you. Its sort of elevating the Lindens to being more than game gods, but true masters. Which is odd for someone who hates BDSM so much.

    The second point deals with the introduction of a new word. I think we should hold a contest like Dan Savage did with Santorum. I would like to see a word that means the following:

    The words in a debate that contain either 1. Personal attacks against the proponent of an argument in order to discredit the argument (she’s not a lawyer, she’s immoral or cavalier, which doesn’t take away from the main argument) or 2. accurate statements that have nothing to do with the main argument (501-c-3 exemptions in relation to an argument about VAT).

    I was going to vote for tofy, until I was reminded that the pronunciation would be like toffee.

  25. JimBean

    Sep 30th, 2007

    I am continually amazed at the level of discourse here. It’s like listening to fourth-graders argue about a presidential elections. And in the end, the only thing you nutbags can agree on is that it’s LL’s fault.

    I can’t wait to see how you blame LL for AIDS, war, and famine.

  26. Saffia Widdershins

    Sep 30th, 2007

    If we want this changed, we need to do more than complain, we need to organise. I’m starting to do that through the blog for my magazine, Prim Perfect.

    We can lobby MEPs individually as well as putting together a petition.

    There’s also letters to local MPs (after all, they put directives into effect) and government departments charged with promoting e-commerce.

    I suspect individual emails from voters, asking questions that have to be answered, will have more effect than petitions unless we were able to collects a HUGE number of signatures. Although there might be a way to do that too.

    People tend to dismiss Linden Labs, but what hurts residents economically hurts them too. They don’t want to lose businesses or residents, or be seen to have an economy in decline – because that will hit them hard too (and at a time when other organisations seem to be gearing up for virtual worlds). So their support for a petition would be very useful.

    And what about spreading this through other games that could, in the future, be affected?

    I’m doing an article for the blog today – and will post a link to it here when it’s posted.

  27. Saffia Widdershins

    Sep 30th, 2007

    The address for my blogpost on this, which offers my suggestions for starting a campaign is at: http://primperfectblog.wordpress.com/2007/09/30/the-eu-vat-and-second-life-what-can-we-do/

  28. archie lukas

    Sep 30th, 2007

    Did you know its illegal to advertise a service for retail
    (ie not wholesale or trade)
    without the published price including VAT?

    advertised without and the VAT inclusive price underneath is also illegal – yes I know PC companies do it, so shop them.

    So LL had better change their subs and advertising if they want to charge VAT and advertise services in the UK & Europe.

    Global economy?

    My arse…..

  29. janeforyou Barbara

    Oct 1st, 2007

    You can ONLY register for VAT IF
    “Your taxable supplies, distance sales, or acquisitions are not expected to exceed £64,000 in the next 30 days, and have not exceeded £64,000 in the past 12 months…”

    And you dont pay VAT on : • selling, leasing and letting land and buildings

    So if you sell for like 30 mill Linden a yare in items you may VAT reg,,lol

  30. Talia Jiang

    Oct 1st, 2007

    Many businesses own sims, earn money in Linden Dollars and pay for the sim from those Linden Dollars and without using RL money.

    Linden Labs are suddenly asking Europeans for an extra 15% to 25 % for sim rental. This cuts directly into profits and it doesn’t matter if the rise is due to VAT or something else.

    I don’t know how many business can survive having to make an additional 15 to 25% in 4 weeks when they were unprepared for it.

  31. DaveOner

    Oct 1st, 2007

    This’ll sure help those of us whose SL gameplay isn’t motivated by greed and sloth! Well, greed, anyway ;)

    I’ve felt for a long time that SL would be much better if the financial angle was muted a bit so people more interested in actual creativity over profit could have more room to breathe!

    It looks like it’s happening!

    But yeah, I really hate that LL made those EU VAT laws. Oh wait…

  32. Jo Earp

    Oct 1st, 2007

    I dont often post in forums, but on this topic I feel compelled to say at least 2 things:

    1. Prokofy, I’m saddened by your uncalled for and frankly offensive remarks about “knuckleheaded Europeans” and all the vile baggage surrounding that remark. All so unnecessary & my opinion of you has fallen considerably as a result.

    2. A great deal is being spouted by proponents and antagonists over this VAT issue. Most is well-intended but ill-founded and misleading. (Some, like Prokofy, are simply venting subjectively with no intent to illuminate).

    I’m fairly certain it will take a genuine tax lawyer to unravel all of this fairly, but my instinct and experience in UK business tells me there is something deeply flawed in LL’s grasp of EU tax law, no matter how many tax experts they claim to have consulted.

    For now, I will point out that, according to HM Revenue and Custom’s own website and the very helpful advice centre assistant i spoke to, the question of whether or not VAT is payable on services is initially governed by one simple rule:

    Where is “The Place of Supply” of the service?

    If outwith the UK and EU, then HM Reference Notice 741 clearly states that if supply is made from outside the EC it is therefore not liable to VAT in any member State (although local taxes may apply). Such supplies are said to be “outside the scope” of both UK and EC VAT

    Tax law of course is never simple, so it could be that one of LL’s advisers has argued that by accessing SL from a UK-based pc, the place of supply then becomes the UK.

    However, I’ll leave the final word to the Advice Centre assistant, who, while struggling to remain composed and professional, amusedly expressed the view that, although membership of a virtual community is a new phenomenon, that “somebody would seem to have gotten their wires crossed” & would be advised to clarify their actions before inadvertently breaking UK law. (this comment was specifically in reference to charging VAT on premium membership).

    (For anyone brave enough to delve into the mire, I’ve included the url for Notice 741)


  33. Jo Earp

    Oct 1st, 2007

    Janeforyou – unfortunately, you CAN register voluntarily if your turnover is under the threshold. However, you have to first prove your business transactions are liable for VAT.

    For the average SL resident, this is clearly absurd and would probably result in a SL resident being laughed out of the office by the taxman.

    Linked to this, it’ll be interesting to see if LL incorporate VAT into the advertised price, which is quite definitely a legal requirement.

    (I suspect they will argue we arent customers but participants in a business transaction, which will exempt LL from this requirement. but that of course, would contradict the probable view of the taxman, who would most likely NOT view taking out a premium SL membership as a business transaction)

  34. DaveOner

    Oct 1st, 2007

    @Jo Earp:

    I think your post was well thought out. However you’re missing one key item: LL is having servers put up in the UK from what I’ve heard of this matter. I’m not tax expert in the US (let alone EU) but it seems like that will have bearing on the issue.

  35. Jo Earp

    Oct 1st, 2007


    I see what you are getting at, but it isnt a factor according to the website link i gave earlier.

    What *is* likely to be a factor is what i alluded to earlier – by “importing” the imagery and facility to interact on SL from *any* server into your home, it seems the taxman has decided the place of supply becomes liable for VAT, even if based outside the EU.

    Even though the link is tenuous to say the least, (aimed more at website hosting companies etc), LL’s advisors seem to have decided that SL belongs to the VAT category referred to as “Non-EU businesses supplying electronically supplied services to EU customers”.

    I dont believe in knee-jerk reactions, but I think the whole affair has been cynically and poorly handled by LL. Not that I expect them to give one whit.

    For the first time ever – I’m pondering whether SL is worth all the grief…….and money.

  36. Tyrian Camilo

    Oct 1st, 2007

    If you are wondering what doesn’t add up, read this: http://blog.sl-investors-bank.com/2007/09/29/ll-introduced-vat-commits-fraud/

    In effect, they are not complying to a bunch of business laws.

    In fact, these crimes are SO SERIOUS that it could even mean recovery after prosecution will take years and years.

  37. Bibi Book

    Oct 2nd, 2007

    Prokofy, you are really wrong about the 30 days.

    - My account got the updated info on 27th.
    - Next payment day: 27th.
    - Mail arrived a few hours after it was added.
    - They charged the sum at 27th (local day 28th).

    So where has the warning been there? They needed time to set all up and to negotioate with tax authorities. So why not inform us earlier? The tax rules apply since july 2003. And according to business sites in US it is known there, too.

    They charged for next billing day. If the billing has been done already, people have up to 30 days warning. if they have the “luck” to have the billing day at 27th or a few days later only, there has been no warning.

    This also means: those having the billing date like me, pay for about one month more tax than those having had the billing day 1 day before they applied it.

    And yes, I want an answer from LL, why they did it without warning, and I want to know, if the original price was without california tax or inclusive (the web page does not tell that).

    But what would a warning have helped at least? I could consider to quit SL. But that will make me loose all land which was bought by me and all my inventory.
    Even if I had “bought” a sim, I would get nothing from the “buy” price back which makes the “buy” price turn out as a much too high setup fee that way. If people really could “buy” the regions, they would get money back, when giving the region back to SL. But region owners get no refund and the region gets sold again for same price.

    For what LL wants now from Europeans a month you can get a fully managed server with software (dedicated machine) in a data center (managed means: you call and they repair any fault within one day normally) without having to pay nearly 2000 $ setup fee in addition. LL can only do that because they have a monopol on what they are providing.

    It is not the VAT at all, what annoys me again so much. It is that they show us all the time: you are good for bringing content, you are good for paying us, but please stay away from us with complaints about missing customer service.

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