“tax doesn’t have to be taxing” is the slogan from the UK tax authorities, oh yes it does is the answer from UK citizens. However it’s not just in the UK where tax is taxing. There’s a whole plethora of ways where tax authorities are looking to tax their citizens and in terms of virtual worlds, they’re starting to dip their toes in the waters and work out how to tax those who run virtual business.
Second Life is one such virtual world, one whereby Europeans have been battered by value added tax since October 2007. Well people have to pay taxes right? Moaning about them is silly, but, and it’s a big but, when VAT was introduced to Second Life it created a major anomaly for European users, and it’s in this area that the tax authorities need to grow up. I’ll touch upon areas where users need to grow up later.
VAT on electronic services was introduced to “level the playing field” for European business. Prior to this change in legislation we had the situation whereby a European firm had to charge VAT on electronic services, but American firms selling to European users did not. Ergo European business complained and rightly so, their bills were higher and the law was changed and sweetness and light blossomed, foreign service providers who crossed a certain turnover threshold were now being requested to charge VAT on their products, ensuring European firms weren’t disadvantaged…until virtual worlds came into the equation.
Virtual worlds complicate matters, they cause chaos. Now a European small business in Second Life is billed tier payments plus VAT every month, putting them at a disadvantage. Inworld payments are not considered services for tax purposes (nor should they be at this moment in time, they’d be impossible to audit). This means a small European business cannot offset VAT as they usually would, meaning the playing field is no longer level, indeed it’s the very playing field that the legislation was brought into prevent. So what do the European Union tax experts say when presented with this disparity:
“One consequence is that a foreign supplier faces essentially the same tax obligations as an EU supplier, thus assuring a level playing field for all.”
You see, when faced with disparity, they don’t listen. They’re too busy with their noses in the tax trough to realise the situation is the exact situation that the legislation was introduced to prevent. Of course there’s not enough business players in virtual worlds yet for pressure to be applied. European politicians don’t answer their citizens, well mine doesn’t. My UK represenatative answered me, but told me it was a European issue, as did the UK tax authority, but my European elected representative couldn’t be bothered to answer and when I finally get an answer from a European bureaucrat, they completely ignore the issue. They need to grow up and meet people halfway. Charge VAT on the premium membership, fine. Not on the monthly tier costs that cause such disparity.
Then there’s the other side of the coin, tax, employment and legislation and this is an area where users need to grow up. Read the rest of this entry »