Second Life and "The VAT Question"
When I wrote the last post on this topic I was assuming that the decision to add VAT (value added tax) to its billings meant, that Linden Lab was opening a European subsidiary. Boy, was I wrong. What I wasn't aware of, was the fact that every company selling "electronically supplied services" to EU residents has to charge VAT to these customers according to the local rules in the respective country of residence. It doesn't matter, where in the world this company is located.
Hmmm ... On the one hand I can understand the reasoning behind this construction. Because in all the countries in which the principle of VAT is implemented, the government expects this tax to be charged for any goods sold to its residents. This usually doesn't apply to physical goods that are bought in other countries and wich are transported into the country (for example, when I, as a German, buy a book at Amazon USA and the book is shipped to me). In this case, though, VAT is charged to me directly by the state when these goods cross the border. So it actually seems plausible to me - because it is consistent -, to implement such a scheme for electronically supplied services, too. BTW: what is an "electronically supplied service"?
Here is the definition (cited from the digital library of the Internet Business Law Service):
An 'electronically supplied service' is a service that, in the first instance, is delivered over the Internet or through an electronic network. These services include the provision of digitized products, such as software, and the provision of any service which provides, or supports a business or personal presence on an electronic network; for instance a website or a Webpage.
And this is exactly what Linden Lab does. It offers a software (at no charge), which is used to access a service provided through the internet. Additionally, the company sells storage space and processing capacity (land) like many ISPs and hosting services do. So far so good.
On the other hand it seems completely unrealistic to me, to expect that business in other countries will abide to this law. It might be possible to enforce it with a large or with some middle sized companies (like Linden Lab) doing business in the EU. But what about the guy dealing in land or providing some advertising service in SL, who is located in Asia, South America or in the US but is doing business with residents of an EU country? Does anyone really expect them to charge VAT and forward the money paid to the EU?
And what about the different handling of currencies. If we apply the same principles, Linden Lab is planning to apply, to other "virtual" companies (with very real businesses) the handling of currencies becomes real funny.
For payments done with L$, no VAT is applied (because you would never know, in which country the customer avatar resides anyway). If it is done with US$ through a service like PayPal (where you learn about the customers nationality), VAT has to be applied. This does not strike me as very consistent. Applied to a virtual business in Second Life this means that a land lord accepting monthly payments in US$ or EUR through PayPal or Google Checkout has to add VAT, while no VAT is applied, if the customer decides to pay in L$ for the very same transaction. Plausible ????
We certainly do live in interesting times. Maybe it is time to think about implementing the principles of granular identity.
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