The big FAT VAT issue

[Exavor Diesel]

I'm from the UK and I'm paying an extra 20% on all purchases to LL. The concept of paying VAT to a company which resides in the USA completely baffles me, even after reading LL's article on VAT. (linked below) The question remains and the question is WHY? I know that European legislation states that this is a legal requirement. However, LL does not reside in Europe and is therefore not under European jurisdiction.

I also know that LL once had offices based in the UK and I wouldn't be surprised if this influenced them to charge VAT as there may have been implications if they didn't. However, they no longer have offices in the UK so surely they can stop charging VAT?

If I wanted to rent a dedicated server (probably the most like for like service comparable to a sim) from pretty much any of the USA's largest data centres, I wouldn't be charged VAT. In fact, I don't recall being charged VAT on any services from US companies which don't have offices in Europe. So if I don't have to pay it to them (some of these companies are larger than LL) then why am I paying VAT to LL?

To put things into perspective, if Iran suddenly said that LL should give them 50% of the revenue taken from Iranians, I'm 99% sure LL would not play ball. To be honest, I could see them laughing at the desks at such an idea. 

So the question is, why are Europeans paying VAT to a company based in the USA, which isn't governed by European legislation?

http://secondlife.com/corporate/vat.php

 

 

[Dresden Ceriano]

Ask your government.

...Dres

[Exavor Diesel]

But LL is not under the jurisdication of my government. Therefore in theory, I don't see why LL cannot ignore such legislations given that they're not legally bound by these legislations.

Based on that logic, any government could make up any legislation in order to take money from companies based in other countries. We all know that in the real world, there's no reason for this to be allowed and we also know that most companies would not play ball with such a concept.  

[Faithless Babii]

This also puzzles me..I could understand it when they had offices in the UK..but now they dont. Makes it kinda unfair that I and others have to pay that extra 20% on sim tiers each month...never seen a complete answer to this much asked question either (dont expect we will get one)

[Phil Deakins]

Are you sure that LL no longer has an office in the UK. Where is "billing" these days. It was in Gateshead.

I know that, if an overseas company has an office in the UK, then it has to charge VAT to UK residents. I don't know if the same applies when the company has an office anywhere in the EU. So I have two more questions:-

1. Does LL have an office somewhere in the EU?

2. Does having an office somewhere in the EU mean that all EU residents have to be charged VAT?

[Dresden Ceriano]

So, you're saying a company should skirt the rules of a country in which they do business?  And if they don't, there is some sort of injustice?  Good luck with that.

...Dres

[Exavor Diesel]

@ Dres,

They don't DO business in the UK. They may TAKE business from the UK but they certainly don't DO business with us in the UK. (caps to emphasise the big difference)

Even if they did, and based on your logic, LL would have to comply with every law around the world, in almost every single country given that LL has residents from all over the globe. We all know that doesn't happen simply because it can't happen. It would not be practical and there would be far too many conflicts & contradictions in law to make it feasible.  

[Jenni Lefevre]

I know from having to call billing support, that is handled through an office in Virginia.    Thought LL does list numbers in several European countries and Japan.

 

Local Toll-Free numbers

• France: 0805.101.490
• Germany: 0800.664.5510
• Japan: 0066.33.132.830
• Portugal: 800.814.450
• Spain: 800.300.560
• UK: 0800.048.4646
• Support is in English Only

Whether this means they actual have offices in these countries or not is unclear, especially since the last line in the listing says support is available in English only.

Fortunately, living in the US, this is something I do not have to deal with, yet.   Give it time though and I'm sure we will.   And with my country's propensity to double and triple tax everything, who knows how that will effect all of us.

[Phil Deakins]

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Faithless Babii wrote:

This also puzzles me..I could understand it when they had offices in the UK..but now they dont. Makes it kinda unfair that I and others have to pay that extra 20% on sim tiers each month...never seen a complete answer to this much asked question either (dont expect we will get one)

---

Has LL's billing dept. moved out of the UK?

If LL no longer has any places of business anywhere in the EU, then they should no longer be charging EU customers VAT.

What I don't know is whether or not having a place of business somewhere in the EU means that they have to charge all EU residents VAT. I also don't know whether or not LL has a place of business somewhere in the EU. Does anyone know about that?

[Exavor Diesel]

@ Jenni Lefevre

They have separate numbers because some people are unable to call foreign numbers. (their call tarrif with their provider may not allow it) Therefore, LL has provided these support numbers in order to prevent it from becoming a problem and also to reduce costs for the call payer. Basically these numbers simply re-direct the call to the office in the USA. It does not have to have any bearing on the actual location. (Which is why sometimes when you ring a US telephone number,  you will often end up speaking to someone in an Indian call centre, (not LL))

[Dresden Ceriano]

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Exavor Diesel wrote:

@ Dres,

They don't DO business in the UK. They may TAKE business from the UK but they certainly don't DO business in the UK. (caps to emphasise the big difference)

Based on your logic, LL would have to comply with every law around the world, in almost every single country given that LL has residents from all over the globe. We all know that doesn't happen simply because it can't happen. It would not be practical and there would be far too many conflicts & contradictions in law to make it feasible.  

---

I've said no such thing... but by all means, please continue to extrapolate completely erroneous meaning from what I actually did say.  That'll seal your case.

...Dres

[Phil Deakins]

I just called the UK number in that list, and it is auto-transfered through to the U.S. So the billing dept., has moved from Gateshead, England to the U.S. Maybe all of those numbers are auto-transfered to the U.S. as well, and LL no longer has any offices in the EU. If that's the case, they should not be charging VAT.

I just thought. I didn't think of it while I was on the phone to billing, but I'm going to call back and ask them why we are being charged VAT.

[Dresden Ceriano]

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Phil Deakins wrote:

I just called the UK number in that list, and it is auto-transfered through to the U.S. So the billing dept., has moved from Gateshead, England to the U.S. Maybe all of those numbers are auto-transfered to the U.S. as well, and LL no longer has any offices in the EU. If that's the case, they should not be charging VAT.

I just thought. I didn't think of it while I was on the phone to billing, but I'm going to call back and ask them why we are being charged VAT.

---

That is what needs to be done instead of asking here, since no one here really knows.  Perhaps you can help to figure it out for those that can't figure it out for themselves.

...Dres

[Orca Flotta]

The must have offices somewhere in the EU zone. Charging VAT doesn't add any profit for LL but only gives them more work. Since any business is collecting VAT only to relay it to the respective gov'ment. This creates nothing but extra trouble for LL. No clever company would ever do that.

On the other hand ... welll, using the terms LL and clever in one sentence doesn't make sense neither.

 

[Sy Beck]

In short blame the EU and European businesses.  Many European providers of electronic services protested that they were having to pay VAT while companies outside of the EU could provide services into Europe without incurring VAT.  Therefore, the law was changed so that any company providing electronic services and goods within the Euro area would be charged an applicable VAT rate.

Some companies chose to absorb the cost on behalf of their customers LL decided to pass it on to customers.  What always annoyed me is that I assume some kind of US sales tax is factored into LL's pricing so I'm therefore paying the same kind of tax twice!

If you go to the archived forum pages you will find pages and pages of posts regarding this topic.  If you want it to change  I'd suggest contacting your local MEP, LL have, and continue to show no sign of shifting their stance.

[ETA] @all it has nothing to do with having physical offices in Europe, it is the services they [LL] provide that are charged.  Offices in European countries would already be paying VAT as a normal part of business activity and would be claimed back for a nil sum as they are a resident business.

[Exavor Diesel]

@Sy Beck

I understand exactly what you're saying but I still question the logic here. If LL is not governed by European legislation in any way, then there's nothing to say that they have to abide by EU legislation.

If for example, I visited the USA from the UK and brought over my British Land Rover, I would not be expected to abide by UK speed limits. Why? Because US law applies and not UK law. I understand it's not a 100% fair comparison, but hopefully it will help emphasise my point. 

I think one of the main questions which will help answer whether or not we should be paying VAT, is "Does LL still have offices in the EU? If they do, then that will imeddiately shoot down any argument I've made because it would then explain why they have to charge VAT. However, I have done some research though and can't find any evidence to suggest that they still have offices within the Euro zone. I can only find evidence to suggest the contrary. 

The page linked below suggests that they only have offices in the US.
http://lindenlab.com/contact 

[Dresden Ceriano]

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Orca Flotta wrote:

On the other hand ... welll, using the terms LL and clever in one sentence doesn't make sense neither.

---

...Dres

[Phil Deakins]

LL doesn't have any place of business in the EU any more. Therefore, they do not have to charge us VAT unless they choose to. The EU cannot and does not make laws that people in other countries have to abide by. Remembering back to the last time I looked into this, the EU did make collecting VAT by overseas countries optional; i.e. they can do it if they want to.

So Linden Lab no longer has to charge their EU customers VAT if they don't want to.

 

[Sy Beck]

They do.  A service counts the same as physical goods for tax purposes.  If you bought an American car and imported it into Europe then you would have to pay tax.  If you are playing SL in Europe you are receiving a service in Europe no matter where it originated from and are there for liable for any or all relevant taxes.  If LL failed to pay VAT in Europe then they could have their service blocked or interrupted with.  

Remember, Microsoft paid its biggest fine ever in Europe for breaking European legislation over its IE package.  A product that doesn't physically exist.

[Sy Beck]

This should explain it all, happy reading.  :smileywink:

 

http://ec.europa.eu/taxation_customs/taxation/vat/traders/e-commerce/index_en.htm

 

Relevant extract:

OECD principles

These measures mean that the EU became the first significant tax jurisdiction in the world to develop and implement a simplified framework for consumption taxes on e-services in accordance with the principles agreed within the framework of the Organisation for Economic Co-operation and Development (OECD). The Directive therefore complements the international process at the OECD. The OECD principles on the taxation of e-commerce were agreed at a 1998 conference in Ottawa. These principles establish that the rules for consumption taxes (such as VAT) should result in taxation in the jurisdiction where consumption takes place. The OECD also agreed that a simplified online registration scheme, as now adopted by the Council, is the only viable option today for applying taxes to e-commerce sales by non-resident traders.

[Exavor Diesel]

@Sy Beck

Then why is it that all of the US comapnies I have bought services from did not charge me VAT? I have leased dedicated servers from big companies in the past few years and was not charged VAT. I have since contacted a number of large US businesses to find out whether or not I will have to pay them VAT and if not, I have asked them if they will pay it for me. (i.e. absorbing the cost) No doubt it will cause them some confusion but either way, I'm pretty sure I will receive answers to support my argument. 

[Exavor Diesel]

@Sy Beck

From the quote below:

"These principles establish that the rules for consumption taxes (such as VAT) should result in taxation in the jurisdiction where consumption takes place."

It says "should" and not "must". The term "should" does not necessarily imply that it's mandatory. After all, the question "why?" still remains given that LL is NOT governed by EU legislation. (on the assumption that they no longer have offices in the EU)

[Orca Flotta]

It should be rather simple to figure this out and see if LL is acting within the laws.

Any of you making use of an US based server host? Any of you playing other games located in the US? Please check your invoices if they charge you VAT or not.

It makes indeed a big difference if I buy an american product from an american company based in the EU or if I make use of american service from a company based in the US. In fact when we play in SL, the product never leaves the boundaries of the US. We're all playing under american jurisdiction (as you experience every time you mutter a certain term that starts with F), so EU VAT isn't applicable.

Maybe there are special laws for internet services since we make use of them while still sitting in our various homes around the EU. So it somehow became an exported good? I dunno have a clue. :matte-motes-impatient:

[Sy Beck]

I'll repeat my previous post as you all seemed to have overlooked it in your rush of indignation.

 

In short blame the EU and European businesses.  Many European providers of electronic services protested that they were having to pay VAT while companies outside of the EU could provide services into Europe without incurring VAT.  Therefore, the law was changed so that any company providing electronic services and goods within the Euro area would be charged an applicable VAT rate.

Some companies chose to absorb the cost on behalf of their customers LL decided to pass it on to customers.  What always annoyed me is that I assume some kind of US sales tax is factored into LL's pricing so I'm therefore paying the same kind of tax twice!

[Drongle McMahon]

Here is another informative link, from UK HMRC. It describes the effect of an EU directive from 2003 that demands that VAT is chargeable on electronically delivered services from outside the EU when those services are delivered to customers inside the EU. Thus it appears to be the law in EU states that businesses delivering such services are required to pay VAT.

How on earth they expect to be able to enforce that is left to your imagination (until we get the undoubtedly forthcoming internet censorship, of course). Presumably a business not charging VAT is breaking EU law and might be liable to sanctions if the VAT authorities were ever to get the chance to impose them?