Just because you don’t pay a tax directly, don’t think you aren’t paying it at all.

I need to specify that Gwyneth didn’t use the word “blessing” in a general way, but only about the possibility of some people to declarate their expenses…

“But on the other hand, if you’re self-employed or a company (even a one-person company!), this will be a blessing.”

I simply tried to show that it is almost impossible to obtain benefits for it, but maybe I wasn’t too clear when doing it and I implied she considered all the VAT mess like a good one.

I fully agree with you (ok, it sounds a bit redundant to agree with you agreeing with me, but I agree anyway :-) about the situation that UE users are suffering; there is little justice in paying a lot of money for a server (in fact, buying it but without owning it) and then discovering that the montly fees had made your adventure impossible.

Even premium users now face to pay a lot more or demote their account, paying an extra AND increased monthly fee to do it.

It is legal, and maybe necessary, but not nice at all.

Being a member of the french community on SL, I have to attest by that by enforcing all of a sudden a new policy regarding VAT, that Linden Labs probably caused the financial demise of lot of european sim owners, who will have to pay roughly 20% more for all sim related costs… ruining most of them in this times of low land costs… witch in turn will cause the departure of many european residents who won’t fit as well outside their language zone and or community.

Taking some time or some financial middle ground before full application of VAT would have helped transition, and by the way the sim owners, and the community. Lots of people will loose their sims, and far more have loosed their confidence in Linden Labs as “gods” of SL.

They global impression we have is that LL is now just thinking of selling technology, and just using the community…

That’s not good, I think on the contrary that SL has no solid technology to sell, but a very strong creative community…

And by the way, the term “blessing” speaking of VAT is quite offensive to someone who has just seen some sims going under because of LL delivering this “blessing” without any warning.

Let me give you a VAT/No VAT example to explain it better why VAT will almost never be a blessing (and that I am sure will end in a confusing way):

No VAT:

I am paying around 100€/month rent for Pandora’s Peace. The shop gives me around 50€ benefit (sometimes less, sometimes more, like when I released the last hud).

The money I don’t spend (renting more land, furnishing, clothing or simply “living la vida loca”) goes to my main account, an alt or the online shops. Only twice I had too much money and I retired it to my RL account, for a total of 250€.

When I fill my IRS papers next year, I’ll declare that 250$ as an extra income, pay around a 20% of it, and that will be all.

VAT

Let’s imagine renting is a VAT involved activity. Now I have to pay a 16% of 12 months rent and, yes, the 1200€ will be a valid expense. Of course, I have to determine that expense is necesary for my business, that I don’t have (if I tried to consider my SL shop a business, I whould have to pay the mandatory 180€/month fee foru auto-employment, even if I am already working for somebody else; only if the SL shop is clearly part of my SL business I’ll avoid that fee… because I am already paying it .-p).

Anyway, let’s imagine I have an Internet related business and that the 1200€ are a valid expense… but if I am being lawfull now I have to declare ALL the shop income; worse, clothes and general SL expenses aren’t valid ones. Even worse; since the SL shop isn’t my main business, it is probably that I’ll fall under a different module of the IAE (Economic Activities Tax), so I will have to pay an extra annual fee for business diversification.

By now, you should had already noticed that the 1200€ expense brings a lot of problems; paperwork, extra fees, all L$ are now income, but not all L$ expenses are, well, expenses .-p. Remember that the other example, that is the one that truly applies to me, only makes me pay for the money I earn… a classic benefits-expenses.

Even in the remote (remoooooooote) case that expenses balanced income, I whould get a 20% return from my expenses against a 16% taks I had payed already, that is, a 4% of my expenses whould come back, if I am in the 20% IRS percentage. Some people is over it, and some under it.

So no, VAT isn’t a blessing; I know I keep using your word, but it sounded so annoying. Maybe we must pay VAT, but there aren’t added benefits (well, if you ignore unemployment subside, free medical care, free education and all that little thingies *smiles*).

I already mentioned where I thought you are wrong, but maybe you didn’t notice because I “said” it by coping-pasting a phrase of one of your commenters; let me do it again:

“Good luck with the tax authorities. They will love hearing your explanation of why you need SL as a business expense.”

It is almost impossible to demostrate that SL is a valid expense. Believe me, I had a shop and fighted with IVA (spanish VAT) for five years. Even if you manage to do it, the tax return you get for that kind of expense is usually smaller that the money you payed for VAT.

So your mistake was to say VAT could be a blessing; yes, there are possibilities that the VAT can get you a bit of money back, but they are too remote to consider them as a valid point, I think.

Now, why “should” LL give euro users a discount. They don’t. In fact, I wrote “and yes, I am not saying they should do that; it is their money.”. Where did you see the should?

But yes, I agree people can feel uneasy about euro users paying less, even if they end paying the same. Good point; a bit of sad about the lose of competitivity, but good point anyway.

Now, about all the rest… I hope you don’t feel that I am ignoring you, but I still feel things could had done in a different way… some quickies…

- They should had known that they where “announcing it to the world”, as already happened. They weren’t obliged to do it better, but they could had done it (example: we are asking our tax experts…, it seems like you will have to pay… ,soon we will give you…). You seem to ignore the need of some users for time to addapt and react in exchange for a, what, shadow announcement that becomed widely public, anyway?

- “What LL just did is to prevent European residents to “forget” to pay for their taxes… by enforcing them on behalf of our nice European revenue services.” They don’t had to do it, but they did it before being required to do so, isn’t it? I doubt they whould had been forbidden to work at Europe without a previous warning… like the one we didnt got :-p.

- Bad praxis doesn’t mean illegal (lit. “bad method”), but usually abuse of power or abusive rules in a contract… like the extra month payment (btw, was it applied retroactively? that could be illegal). In fact, what I doubt is legal is that we are forced to sign a new ToS, that limits the liberties of the old one, or lose all our in world properties… sorry… they aren’t ours anymore, isn’t it… they where when I started here.

- Yes, I know the boxed WOW includes VAT, that’s why I asked for the monthly fee. Anyway, you reasoning they are suggesting us to evade our taxes covers it… it is clear we should be forced to do it :-p.

- Thanks, truly thanks about the US taxation answer. I was really curious about it, and I like to know I am not double-paying; I only mentioned that because some posts said we where doing it, to the state of California (btw, notice I only asked).

Now it gets juicy… about your conclusion that LL had to make it legal… I said the same. Ok, not “had”, but that it wasnt wrong:

“Maybe LL needed to do it, and yes, all us are law abiding people *smiles*; but that doesn’t mean that it isn’t a hard hit for some people, and that it could had been approached in a better way. And yes, I know it is always easy to judge and say “they should had done this” after it happens, but still, it itches.”

Also, I never said the fall of SL euro users will affect SL economy, because I (sadly) agree with you (I think you are mixing answers to other posts here :-p). I said it will affect EU users.

My conclusions where… VAT isn’t a blessing (remember, where I said you where badly mistaken?), EU sim owners will be deeply affected after paying an awfull lot of money for a land that, just now, has devaluated, since people knows there will be a lot of sales soon, and LL could had done things better, as usual.

And yes, I was mistaken in some points, like suggesting the double taxing posibility (California/EU), and even when I compared the unlawfull situation of other online sites (maybe WOW? we still don’t now) and suggested LL could had done the same.

Anyway, after reading your (loooong :-) comment, I am afraid you aren’t answering to my post, but to the way you perceived it, and probably to the mix of rants you had suffered until now *smiles*. Please, have a look at it, at this comment, and then give me another shot if you don’t agree with me… but, please, too, believe me when I say my intention was just to say (and yes, I know I am repeating myself and skipping some of my mistakes):

- You where wrong about the possible “blessing” of VAT in a 99.99999% of cases.

- LL could had avoided it… and yes, I was wrong about this. I concede on this one, you are right about the legal problems. Still, I think they hurry too much about covering themselves, but it is their company, I am no one to tell them what risks take.

- A lot of UE sim owners are going to be hurted. And yes, I totally ignored dumping laws, and ignored the opinion of non EU users about a discount… but the feeling is still the same; LL doesn’t care about their customers, not only premium users, but land owners. No, they aren’t evil, they have other worries. But as a customer, I don’t have to like it. They could had done it in a better way.

Nothing more, love your posts and already waiting for Havoc 4 :-)

I’ll be happy to correct them if you point them out to me, though!

As for having LL do a partial discount for European users… why should they? :) LL has currently a policy of “no discounts”, unlike what happened in the past (ie. if you bought 40 islands, you got a discount; if you bough 40 Premium accounts, you got a discount; etc.). So I fail to understand why suddenly the European residents should be entitled to a “discount” of some sort… why should we? Wouldn’t that be discriminating against the non-European users (still half of SL!)?

As for their communication skills… well… announcing to the world that Linden Lab is now complying with European Directive 2002/38/EC from July 1, 2003 — is not necessarily something easy to say! Mostly because some interested parties (eg. the UK Revenue System) might be curious and ask: “sure, you’re compliant with European Directives now, but what about the past 4 years…?”

In effect, what every European resident should have done in the past 4 years is to get the bill from LL and pay reverse VAT on it in their country of residence — which is also part of the European taxation laws. Put into other words: US companies are not liable to “tax fraud” if they forget to bill us VAT for the services we acquire — although they might get a nasty shock by being forbidden to transact in European commerce if they neglect to comply with European law — but we European taxpayers are — so if we did not revere-charge ourselves with VAT voluntarily, we are to blame (by our local revenue services) — not LL!

What LL just did is to prevent European residents to “forget” to pay for their taxes… by enforcing them on behalf of our nice European revenue services.

So, no, I disagree that LL has any moral grounds for somehow granting a benefit (a discount; a delay in the application of the appropriate tax laws; a postponement) to people who don’t wish to pay their taxes! In effect, if they did that — and now that they’re also an UK company, they’re much closely watched — I’m pretty sure that this would be very likely viewed as a minor form of incitement to tax evasion and embezzlement, besides being against the dumping laws in Europe, so this would look even worse to LL, if they somehow projected the image that they wanted to be “nice” on 5 million users and sort of “minimise” the impact of their taxes. I’m not sure how good that would look on their public relations!

Then there is the issue of “fair warning” or the way they should communicate to us how they are complying with European laws. Well, I can only remind to you how PayPal treats their customers: they lock your account for 6-18 months first, without even giving you a clue on why it was locked, until after much begging and email/fax exchanges you find out that you have violated some obscure minor law in Europe. After those months of patiently trying to get your account back, you find out that it was wiped clean of any money you might have on it — since PayPal has this nice ToS, legally unsustainable in Europe, that they can take your money away every time they wish and cancel your account at whim.

Well, LL also has a nice ToS basically telling us the same thing — but at least they give us a last-minute-warning :) I’m not saying that they’re doing it well — God knows they aren’t! — but it’s definitely bettter than nothing. At least you can pack up and go away.

Paying to get your service terminated is frowned upon, but technically not illegal, ie. like phone, water, or power companies demanding that you pay something for them to cancel their service (since they have to remove something out of your home — phone lines, a water metre, whatever). So it’s something which is not nice to do, but not exactly illegal.

As to “other companies” who incite their European customers to avoid taxes… well, the boxed version of WoW does indeed pay VAT, although I’m not sure how the billing works for the monthly fee. They certainly address taxation in the US according to the state the customer comes from: http://us.blizzard.com/support/article.xml?articleId=20564

But it requires someone who actually plays WoW to explain how they bill their customers.

In any case, we’re not being additionally billed for US taxes (the US does not have VAT; only a few US states have some form of sales tax, and this often doesn’t apply to services — only goods — and not always to online commerce, either).

LL, like any other company in the world wishing to sell services in the European market, have no choice but to comply with European Directive 2002/38/EC since July 1, 2003 :) So, no, it’s not like LL just turned evil and got an excellent reason for increasing the prices of their services for half of their residents. In fact, being very sceptical of all sorts of drama and world conspiration theories, it’s far more likely that LL’s new UK accountants just sat down with Babbage and his crew and asked him: “So, well, how much VAT do you claim from your residents? — Hmm, none? — WHAT? You’re crazy?? This is a major tax evasion scheme and highly illegal, let’s get your US counterpart to fix this until it’s too late and someone at the Revenue Service finds out what you’re doing!!” and this got the ball rolling… very quickly!

Now, then comes the moral issue. Is it “right” or “wrong” to spoil 5 million users’ enjoyment of SL just to be able to comply with European legislation? The answer is naturally a complex one. Everybody is always complaining that LL does not have an Euro-compliant ToS; that they disregard European legislation on online gambling, but are willing to charge us for VAT; that they should get rid of ageplayers and Nazi insignia because they’re forbidden in some European countries. So it’s complex — which European legislation should LL follow, and which should they ignore? It’s a moral issue in most cases, but a legal one in most cases — ie. LL cannot afford to break too many European laws, but some have more consequences than others.

Then there is the issue of keeping the SL economy sustainable! Actually, I don’t believe this will affect LL at all. Sure, they’ll lose half their Premium accounts, but LL has long since dropped that as a major source of income — all they want is to host private islands. And what will obviously happen is that European users will not buy any more islands, but instead rent them wholesale from non-EU users. For LL it’s the same thing: they’ll get the monthly fees from non-EU residents, who will now have a new business opportunity, and if I were them, I’d be aggressively buying now a lot of islands since it’s quite likely that another big wave of residents are going to drop tier on the mainland, sell their islands, and come to the tax-free world of private islands owned by non-EU members, where you can pay your tier with L$ without problems.

Oh, and for the record, I don’t like it either — there are a lot of things that could and should be made differently by LL, but they’re far too stubborn to listen and learn…