Surprise! European VAT Tax Surcharge in SL
by Alphaville Herald on 29/09/07 at 8:24 am
Did LL really forget to collect tax until now – or is US$ exchange rate slide to blame?
by Jessica Holyoke
Linden Lab dares to be different – and forgets to include VAT tax in prices until now?
Tax day has arrived in Second Life, but with a surprise twist. Instead of game-related tax collections by the US Internal Revenue Service, Robin Linden announced that Value Added Tax or VAT is now being collected from European Union residents for all services obtained directly from Linden Labs. This raises the question of whether VAT was previously not being collected – or – is this simply a classic Linden Lab public relations disaster as they attempt to deflect blame for the need to raise prices to cover the US$’s slide against the Euro?
The custom in the European Union is to publish prices including the VAT tax, and the presumption is that VAT is added at each stage of a supply chain, manufacturer to retailer – unlike North American sales taxes. Traditionally VAT is also included in the advertised price – but the Lindens have chosen to treat the new VAT tax as a surcharge on their published prices. The Lab is now adding VAT to Premium account registration, land purchased at auction and all tier payments.
Some residents were unhappy to discover they had one day’s notice before being slapped with a 20% surcharge. The head of Second Life Investor’s Bank, Tyrian Camilo, reports that the addition of VAT to his banking model, which includes the buying and selling of land to make the interest payments for depositors, will now have an additional 22% cost to his doing business. It seems unlikely that this economic shock will help the in-world economy in the near term.
Buy your European goods and services before the players flee in disgust
According to the new announcement, Linden Labs is not collecting VAT on resident to resident transactions. According to Ernst Young, content covered by the VAT rules include software and other internet services. While Linden Labs may not be collecting VAT on resident to resident transactions, the responsibility of other EU residents being required to pay VAT on their transactions or of non-EU store owners now needing to pay VAT when selling to EU customers is a new topic that needs greater research, including feasibility in an anonymous world and whether there are minimum purchase exemptions. According to the European Commission, the minimum value for VAT on physical goods is not being applied to digital services<.
The rules on collecting VAT from European Residents using electric services have been around since May of 2002 and the passing of EU Directive 2002/38/EC (courtesy of Gwyneth Llewelyn), the new collection of the VAT might be due to Linden Labs moving to England – however, the Lab has always been obligated to collect the tax. The timing of the VAT is interesting when viewed against a Linden dollar that tracks a declining US dollar.
Another side effect of the VAT rules is that Linden Labs will be monitoring the IP address of users to ensure they comply with their stated country of origin. Therefore, certain foreign anonymizers may be now useless due to the monitoring of tax payments.
Philip Newton
Sep 29th, 2007
“Traditionally VAT is also included in the advertised price”
At least in Germany, advertised prices for products aimed at end-users must, by law, include VAT. Advertising ex-VAT prices is only allowed to products aimed at businesses.
luis
Sep 29th, 2007
I am a great player of fooball and cook and a great retailer, pleasant and I like to talk
Alazarin
Sep 29th, 2007
Well, I’m not about to ‘Leave SL in disgust’ but I am disappointed with the cowardly and sly way LL introduced VAT. They could have at least trailed it for a while so as to give European players time to prepare and get their paperwork in order. I’m only a small fish in the SL business scene but I can imagine that it’s going to be a major headache for the larger players who are no doubt cussing LL for springing it virtually unannounced on them.
I’d like to see LL introducing the option to make tier payments in L$ to Currency Linden (or some other designated Linden). That would go a long way towards easing the pain for European residents as the tier transactions would then be in the ‘resident-to-resident’ category and not VAT taxable. I’m not holding my breath on that one but I can live in hope.
Prokofy Neva
Sep 29th, 2007
Everything about this article is retarded in its logic, infused with the usual beligerent, angry tribalist mentality of the roiling mob always seething in Second Life. That blinds it and its fake mouthpieces like Jessica to reason.
It’s a total misrepresentation to say “residents got one day notice before being slapped with a 20 percent surchage”. In fact, they got 30 days’ notice to pay a surcharge that will differ according to their country’s VAT, 17-25 percent appears to be the range.
1. If it were true that because by law VAT must be “included or else!” then by implication, every single price set in America, whether in a restaurant or on amazon.com or by Linden Lab in California, is lying, illegal, false, non-compliant, etc. because it failed to report that it did NOT include VAT. That’s absurd, however. And…that’s why stuff like the Boston Tea Party happened!
No American company is required to put notices relevant to other country’s tax systems — insane. Linden Lab always had a set of prices; they haven’t changed; they announce it when they make price changes.
2. When they open up an office in the EU, which they’ve done now in England, and plan to do or are in the process of doing elsewhere in Europe, then, yes, they have to start adjusting to these heavier costs for these social welfare states in their payroll taxes and sales taxes and such. So, accordingly, they have indeed given *one month’s notice* to their customers that NEXT MONTH, i.e. in their next tier bill, they will see prices that DO INCLUDE THE VAT. So they haven’t “lied” about any price; they haven’t misadvertised any price; they haven’t “not included” any price — in fact they have given a 30-day notice to their customers that next month, the VAT, which they cannot indeed be expected to absorb as it is 19 or 25 percent in most countries, is indeed going to be added on and included in the bill they’ll be getting.
Literalists take the “adding on” which you simply have to do as you begin to do business in the EU as “adding on in violation of law that says you have to include it”. But that’s just the mob looking for Internet legalisms and lawyerisms that are stupid, with no sound legal opinion rendered from a competent source, just a lot of Googling idiocy (like we get here from not-a-lawyer Jessica).
The Lindens told their European customers: here’s your price next month, and it will include 17 percent more to reflect the VAT which we must include or whatever the amount is for that country where the person resides.
It’s instructive, instead of listening to all the mob shrieking, to read the letter they sent out:
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:
https://secondlife.com/account/vat_enter_id.php
If you have other questions, please read the VAT FAQ:
http://secondlife.com/corporate/vat.php
You can also contact us via the support portal:
http://secondlife.com/support
Best regards, and thank you for your continuing support.
Linden Lab
Creators of Second Life
***
Pretty clear. The only thing one can fault them for is not telling in the blog as a courtesy — even 60 days notice would be good there — but at least BEFORE they released the letter.
All this vain and stupid talk about how the Lindens will be sued by the EU for 6 months or 3 years back taxes; all this scare-mongering and idiocy in group chat about people worried they will be socked with back taxes by their governments; all this hysteria is stupid. Due notification went out, and starting next month, you will have to pay.
Now, what would be a good idea for LL to do, given this huge disparity in the market this creates for Second Life? I think they should be persuaded, given the suddenness and lack of notice that even their 30-day notice represents, to reduce prices on islands and monthly tier for Europeans for 30 days. I don’t think they could justify the entire cost of the freight, but say, $150 reduction on an island purchase and $25 on a monthly tier (given that islands go up then $300 in price and tier goes up $50 in price roughly given 17 percent increase). That’s a hit for LL, but means they won’t suddenly lose all these customers.
Except…most of the people screaming in the chat will not be tiering down — people always threaten that and don’t do it. Will European land barons pass this on to customers? If they have language and culture themed sims they may be able to get away with passing it on. And after all, with the decline of the US dollar, the Euro simply buys more dollars and already puts Europeans at an advantage in the economy (it would be interesting to see by how much).
At the end of the day, all the screaming at Linden Lab is misplaced. The high taxes of VAT are directly a consequence of European socialism, the socialism that people always want to take advantage of, but never want to have to pay for themselves. They were lucky that this company gave them a start in business without socking them with the kind of taxation that saps and drains European business enterprise and makes its aging population less competitive with the rest of the world. Now, they have to face the music that is the direct consequence of their elected governments.
LL can’t go on keeping a free-enterprise taxless zone for everybody like a duty-free liquor zone at the Canadian-U.s. border. Instead, due to EU policies, people will simply have to pay more to access this opportunity. They should complain about the 2003 law clarifying that VAT has to apply to electronic commerce, not bitch about LL which has no choice to comply with this law.
LL has not “always been obligated” to pay the tax. They are a company in the United States. It’s only from the time of their registration in England that one could argue they could become liable — and the question there is what the timing was on the paperwork.
LL has always monitored IPs. Years ago, James Linden explained on the forums that even to log into SL, you are obviously required to show your IP, and indeed it is tracked. The Lindens do things like keep forums bans using the tracking of IPs. They used to prevent the sign-up of more than five accounts through the tracking of IPs. So this isn’t a new practice, and it isn’t one suddenly intrusive of privacy – it was always an intrusion and one that the snickering geeks constantly told us we must tolerate on the old forums whenever I raised concerns about what it meant for privacy and freedom of speech.
What I’d like to see done on this VAT stuff is for the Herald or some more qualified paper to find a working, hired, actually practicing European lawyer (not an Internet lawyer, not an unemployed babbler on Second Life, but one actually practicing, with a reputation for knowledge in this field) and have that person look at this. And I don’t doubt that as this is new territory, several lawyers might disagree about it and it might take a court case to decide or some act of parliament.
Jessica Holyoke
Sep 29th, 2007
Prok, did you read the article or only the by-line before complaining and making things up?
The main thing which you get wrong is that thinking that the Lindens were obligated to charge EU residents VAT only when they became EU located. That is not the case. The specific language of the EC directive states that if a Non-EU company supplies digital services to an EU resident, then they are obligated to remit VAT to the EU. This is a protectionist measure to ensure parity between an EU supplier and a non-EU supplier. It was never a condition of locating to the EU. And if it was due to the Lindens being located in the UK, then they could charge the UK VAT of 17.5%, and not charge according to the country of the consumer.
Malroy May
Sep 29th, 2007
Once again Prokofy Neva know nothing of what it speaks, but it does sound clever, which is the desired effect we have to assume.
Personally I was informed yesterday of the VAT ruling and it requires payment on 3rd Oct.
Not 30 days.
“So they haven’t “lied” about any price; they haven’t misadvertised any price; they haven’t “not included” any price — in fact they have given a 30-day notice to their customers that next month, the VAT, which they cannot indeed be expected to absorb as it is 19 or 25 percent in most countries, is indeed going to be added on and included in the bill they’ll be getting.”
Is utterly incorrect.
The rest of its post is largely non nonsensical ranting based on no understanding of the situation whatsoever, but hey thats why Prok is here.
My suggestion would simply be for EU residents to talk to their tax office rather than feeding Trolls on the internet.
Or does that take the Drama out of it?
Alazarin
Sep 30th, 2007
Prok, I never received anything remotely approaching a 30-day notification that VAT was going to be applied to my tier and subscription to SL. As a matter of fact my main account has yet to receive any notification while one of my alts received notification the day after VAT implementation was slipped in the back door.
Furthermore, while the dollar mat be low compared to the Euro, you forget that it’s the buying power that counts. Wages tend to be lower and the cost of living higher in Europe than in the US. You’ll find that your Dollar will buy more in the US than the equivalent amount of Euros will wil Europe.
but why let facts get in the way of a good rant?
Demian Caldera
Sep 30th, 2007
I’m living in the USA since years. I’m German, with German and US private and business bank accounts and CC. My main account and my alt accounts have a german business CC on file. My IP# clearly should show that I’m logging in from the US, besides a few weeks/months every year when I’m traveling. My main account (premium) didn’t get the VAT email. My two alt accounts, who don’t pay monthly fees or tier, got one.
If I’m residing outside of the European Union and buying something from an US company while in the USA, with an US IP# and paying for it in US$ with an European credit card/bank account, why should I pay VAT?
Prokofy Neva
Sep 30th, 2007
>Prok, I never received anything remotely approaching a 30-day notification that VAT was going to be applied to my tier and subscription to SL.
Perhaps that’s because you are in a class of people whose tier due dates happen to fall nearer the date of the announcement, rather than farther. The notice says the NEXT bill. You were not billed and debited THAT DAY; indeed, you were NOTIFIED it was coming.
Let’s try to determine, rather than blathering in irate and fuming hypotheticals, what the class of people are who really bought sims and paid higher tier in the last 30 days. Um…200 people perhaps? Tops? There has been a decline of premiums, and a slump in the economy, even for Europeans with their stronger currencies that are at a 10 percent or more advantage against us Americans in the SL economic game — by the way.
So, for this class of people, you could propose a remedy — say, simply a failure to bill them, let their bills not hit for 7-10 days. Concentrate on the REMEDY YOU SEEK rather than ranting and raving about lawsuits and evil blood-for-oil Americans.
Oh, you say, everybody who bought land since the dawn of time is also stuck? But how long did you think the American company Linden Lab could keep open this tax-free holiday in this free enterprise zone for you? THAT is how you have to look at it, rather than fussing that YOUR GOVERNMENT’s sustaining YOUR SOCIALISM want to whack at this company — and you.
Given that people do indeed need notification, and given that even Eurocratic judges could probably accept the notion of a 21 or 30 day lead time, the Lindens shouldn’t bill this until they truly have cleared all people’s billing cycles in a 30-day window which is really 60 days or whatever.
So the Lindens, in my view, could do nothing, which they’re good at doing, and let their lousy billing system, which isn’t billing many accounts anyway due to their wierd freezes on them, and just not bill the accounts. Europeans could also just not pay — and there is no penalty for 7 days.
If your account didn’t receive notification, perhaps the IP isn’t recognizable.
I’ll bet even if the Lindens posted a blog for 60 days notice, put on a blue screen and MOTD, there’d still be people screaming.
The invocation of RL costs are really immaterial. Your advantage in the SL economy is what’s under discussion here, and that has been considerable.
But why let facts get in the way of a rant?
—-
Once again Prokofy Neva know nothing of what it speaks, but it does sound clever, which is the desired effect we have to assume.
Actually, “it” is using just common sense and logic, which is in short supply with commentators like you.
>Personally I was informed yesterday of the VAT ruling and it requires payment on 3rd Oct.
Not 30 days.
Well, dumbass, that’s because your tier date happens to fall on Oct. 3. Mine happens to fall on October 20. Somebody else’s falls on Oct. 27. You were not debited THAT instant — you WILL BE debited on Oct. 3. It’s tough, all over, I sympathize. So either don’t pay it, seek a viable remedy, or tier down. We’ve all had to face sudden and nasty shocks from the Lindens all the time for years.
>”So they haven’t “lied” about any price; they haven’t misadvertised any price; they haven’t “not included” any price — in fact they have given a 30-day notice to their customers that next month, the VAT, which they cannot indeed be expected to absorb as it is 19 or 25 percent in most countries, is indeed going to be added on and included in the bill they’ll be getting.”
They haven’t lied. They just told you they are adding this VAT as required in the next billing cycle. Where is the lie?
They have given a billing cycle’s notice, and yes, you are absolutely right, for some unfortunates, that means not an actual calendar 30 days, but 1 day or 10 days *until their next billing cycle*. So that means 60 days would have been required — but was that feasible?
So figure out what is a reasonable remedy, or don’t pay. But they aren’t lying, nor am I.
>The rest of its post is largely non nonsensical ranting based on no understanding of the situation whatsoever, but hey thats why Prok is here.
No, it’s just common sense and logic, which is in short supply on this discussion.
>My suggestion would simply be for EU residents to talk to their tax office rather than feeding Trolls on the internet.
Whereupon we’ll have a million separate opinions, some correct, some conjecture. Experts on this may be talking through their ass, as they have never dealt with interstate commerce, ecommerce, etc.
As we’ve been told ad nauseam, VAT must be included in X percent for X country on all items eligible. And the price WILL reflect that inclusion in the next billing cycle and WILL be higher.
What I’m struck by in all these discussions is how hysterical these Europeans are about tax paperwork. They need to have a Boston Tea Party.
>Or does that take the Drama out of it?
No, what takes the drama out of it is asking you why you think the American company Linden Lab should provide a tax haven, a tax-free business enterprise solution, and a free enterprise zone for you, for the rest of your life?
malroymay
Sep 30th, 2007
Excuse me everyone… Hi Prok!
“Given that people do indeed need notification, and given that even Eurocratic judges could probably accept the notion of a 21 or 30 day lead time, the Lindens shouldn’t bill this until they truly have cleared all people’s billing cycles in a 30-day window which is really 60 days or whatever.”
Yes. Which is all people talking about the ‘notice’ thing are saying. You keep ranting ‘It’s the next bill, the next bill…’ as if it’s idiotic for people to say they have had no warning and then accept that people aren’t getting a fair warning.
Nil Points for Trolling there methinks.
I get the feeling I will have to repeat this at some point.
“Concentrate on the REMEDY YOU SEEK rather than ranting and raving about lawsuits and evil blood-for-oil Americans.”
Hmmm…. Has anyone said anything about ‘evil blood-for-oil Americans’?
Me thinks you doth protest too much… aaaaannnnyway… its not particular nationalities that are at issue. It’s a particular company. LL.
“THAT is how you have to look at it, rather than fussing that YOUR GOVERNMENT’s sustaining YOUR SOCIALISM want to whack at this company — and you.”
Sorry no idea what this means. I get the idea you lean somewhat to the right.
Actually, “it” is using just common sense and logic, which is in short supply with commentators like you.
But Prok, mate, it isn’t, honestly… its about being an argumentative know it all. Discussion is a two (or more) way thing, it isn’t the world according to Prokofy Neva. Thats for your blog. Which is great, by the way, seriously.
And I assume that “commentators like you” means people who question your knowledge on a subject because otherwise you have no idea what I am like.
I don’t know what you do in RL apart from wittering on obscure corners of the internet and playing online games most people have never heard of, but its not possible for you to be an expert on everything. Sorry.
We are all trying to figure out LL’s latest PR fuck up and you keep piping up with personal comments and demonstrably incorrect statements stated as fact. Why you always do that? It doesn’t help.
“Well, dumbass,
There yer go…
Dribbling fuck wit.
THAT’S an insult.
“that’s because your tier date happens to fall on Oct. 3. Mine happens to fall on October 20. Somebody else’s falls on Oct. 27. You were not debited THAT instant — you WILL BE debited on Oct. 3. It’s tough, all over, I sympathize. So either don’t pay it, seek a viable remedy, or tier down. We’ve all had to face sudden and nasty shocks from the Lindens all the time for years.”
Yes. Which is all people talking about the ‘notice’ thing are saying. You keep ranting ‘It’s the next bill, the next bill…’ as if it’s idiotic for people to say they have had no warning and then accept that people aren’t getting a fair warning.
Nil Points for Trolling.
I knew I was going to have to say that again.
“So either don’t pay it, seek a viable remedy, or tier down”
Is your advice that if a company draws a potentially illegal payment from my bank account that I should roll with it? And the potentially illegal aspect came from my bank manager who also advised I talk to the tax office on Monday.
Prok, its largely about an implementation that might be seriously flawed.
Should I defer my bank manager to you so that you can sort it out between you?
“…which they cannot indeed be expected to absorb…”
Why can’t LL absorb the cost? With a reset price to include tax across the board and changes to the amount of tier allowed? Heck, they may even be able to get more pennies out of no EU residents. And if you didn’t like that you could either not pay it, seek a viable remedy, or tier down… to coin a phrase.
Also LL continues to misrepresent the price. There is nothing on the webpage Membership Plans pertaining to VAT. IF anyone is bothering to sign up with SL nowadays the price to him or her is being illegally stated to Europeans. REGARDLESS THAT THEY ARE A U.S. COMPANY.
I suggested:
EU residents to talk to their tax office rather than feeding Trolls on the internet.
Prok replied:
“Whereupon we’ll have a million separate opinions, some correct, some conjecture. Experts on this may be talking through their ass, as they have never dealt with interstate commerce, ecommerce, etc.”
My apologies, I stand corrected. We SHOULD be taking advice from Internet trolls…
“…why you think the American company Linden Lab should provide a tax haven, a tax-free business enterprise solution, and a free enterprise zone for you, for the rest of your life?”
I don’t. My point is only that LL need to correctly set their prices across the board and then give the legally required notice to take extra monies from my bank account. But I don’t expect you to see that point.
If they have been absorbing / paying / ignoring / the VAT thus far (according to which Linden one believes) why rush it in now? Why not do it with some respect for their customers?
And finally can I ask a question? You do realise that no one has ever heard of any of us don’t you?
Malroy
Ps sorry everyone I fed the Troll. I realise s/he is your troll and I shouldn’t interfere…
economic mip
Oct 1st, 2007
The reason some of your avatars are getting the notice and others are not is because the VAT is added on based on (No joke) where you claimed as your country in the sign up process. Now reasonably, if this is in error you can certainly change it at any time, but my understanding is that they will use IP addresses too to enforce it. (However if you claim to be in a European country which has this tax, expect to get it tacked on, because its Linden Labs we are talking about and they are incompetent where billing is concerned.)
DaveOner
Oct 1st, 2007
Common sense (a novelty here) would dictate that LL didn’t want to do this to it’s EU customers. Weren’t there some statistics thrown out there about 6 months ago that there are more EU players on SL than US players? It sounds to me like LL delayed doing this as long as they could and then found out at the last second that they’d get in trouble if they didn’t include VAT. Key people’s lack of EU tax law knowledge probably contributed to it and now they’re scurrying to cover their asses.
In case you haven’t noticed by the overall quality of SL, they tend to scurry at the last second a lot!
We could do the hip internet thing and blame LL for this, but who’s tax is it?
IntLibber Brautigan
Oct 1st, 2007
Politically speaking, we at BNT sympathize with the plight of Europeans. VAT is one of the most punitive taxes and punishes people for being successful in business by making them less competitive, due to forcing their prices higher. It punishes consumers who drive an economy, and it is the VAT which can be blamed for the high unemployment rates and low economic growth across EU nations, which is only good in that the money collected from VAT pays for the welfare state services those unemployed and wage stagnated people need to live, which of course breeds the thinking that people need to depend upon government.
However, I can’t feel too bad, this is, after all, the sort of government that europeans have voted for. If they want to change it, they should first drop the idea that government can solve their problems.
For those who have already gotten that far, but are outnumbered by the masses who continue to believe that its right for two wolves and a sheep to vote whats for dinner, we at BNT have a solution: move to our estates. As we are based in the US state of New Hampshire, we have zero sales tax, no state personal income tax, and no VAT. We have no point of sale in Europe, so we are not obligated to collect VAT.
Moving to our estates in Surreal BT and Ancapistan gets you not only rock bottom land prices at 2000L$ per 512 square meters, but the tier you pay is to us, not LL, so there will not be VAT on either your land purchase or tier payments. Our covenant also is the only one which subscribes to the Common Economic Protocols, which protects the property rights of landowners in our sims.
All but one of our sims are Class 5 sims (the one we first started in, Magritte, is a Class 4), and are not surrounded on all sides by others, like you see on the mainland, which minimizes lag. We also have lag control policies of no more than 1 ms of script lag per 4k square meters.
European sim owners who wish to escape VAT are also encouraged to transfer their sims to us under RL contract, where we recognise their property rights so long as tier remains paid (we do have grace periods).
Owe Pinion
Oct 1st, 2007
My issue is that I live in the U.S. my estate owner is from the U.K. The additional 17.5% was passed down to me in my tier payments. While I understand that the estate owners should not have to bear the entire burden of the VAT, It is also not fair to people who craft their SL budget based on their tier and have little room for increases. The end result, I fear, is that non-EU residents will flee from property owned by EU residents.
The whole idea that resident-to-resident transactions are not affected is just silly. Something like this will affect the economy at every level as people hit with the higher payments will need to offset by raising prices. So whether it is called VAT when it gets to the SL consumer or not, this will impact most residents.
Ranandar Frobozz
Oct 7th, 2007
I will gladly pay your VAT if your government will provide my medical insurance.
Inigo
Oct 9th, 2007
“It’s a total misrepresentation to say “residents got one day notice before being slapped with a 20 percent surchage”. In fact, they got 30 days’ notice to pay a surcharge that will differ according to their country’s VAT, 17-25 percent appears to be the range.”
I got the Linden VAT notification ON THE SAME DAY as the bill for the VAT. And, if the times mentioned on my Account History page and in the LL email are all within the same timezone, one can say I was charged BEFORE receiving the notification.
Way to go Linden!
/sarcasm
virtual worlds
Oct 11th, 2007
20%, 22%? it seems that somebody is charging VAT and a little bit more for tax processing.