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The big FAT VAT issue


Exavor Diesel
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I have read that but it does not change the fact that LL is NOT governed by EU legislation and therefore does not have to abide with, or comply to EU legislation. 

You say that some companies have absorbed the cost instead of passing it on to their customers. However, this is often not the case. For instance, when I contacted Softlayer (They provide dedicated services on a leased basis) about this, they neither request VAT from me, nor did they absorb the cost of this for me. This is not uncommon. They are not breaking any laws because they only operate in the USA and are therefore NOT governed by EU legislation. Effectively, this means EU laws do not apply to them. This should be the case for LL providing they no longer have offices in the EU. 

To prove this, I have attached a screenshot of a conversation with a member of their accounting department. 

http://i43.tinypic.com/24vu147.png

It doesn't prove that they don't absorb the cost and pay it on my behalf. However, I have checked and can see that they're not VAT registered. They cannot pay VAT unless they're VAT registered. This would suggest that they do not pay it on my behalf. Same story with many (if not most) other companies like Softlayer. (who are also very good may I add - they're not a small backstreet US company. They're one of the biggest dedicated server providers in the world.)

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LL used to absorb the Vat tax before..but the population had grown so big that they couldn't do it anymore..so they passed it onto the consumer..

and they do have offices in the EU..just not sales offices..they are registered as a non-EU resident..

here is from the KB..it goes into a bit more detail that the link in your OP..it can probably answer all the questions you had asked so far..i pasted a few under the link that may help to understand some things.. but really the link would help more..

http://wiki.secondlife.com/wiki/Linden_Lab_Official:Value_Added_Tax_%28VAT%29_Frequently_Asked_Questions

 

Is the Second Life billing office based in an EU country? Is that why you are charging VAT?

No. Linden Lab has registered as a non-resident EU business, meaning that we do not have sales offices in Europe. Non-resident EU business that provide "Electronically Supplied Services" such as hosted applications, downloadable software and downloadable music, must charge each of its customers VAT according to the VAT rate of the country where the customer resides.

 

What are the items for which Linden Lab doesn't charge VAT?

Transactions in L$ between individual Residents, that do not involve Linden Lab as a direct party, are not subject to VAT.

 

But doesn't Linden Lab have offices in Europe?

Yes but all Second Life Residents are customers of the US corporate entity.

 

Why should European Residents pay a sizeable amount more for everything in Second Life for no additional benefit?

The EU Commission implemented the VAT rule about Electronically Supplied Services by non-EU resident entities in order to level the playing field for EU-based providers of services. The aim is to enable European providers of competitive services to Second Life to compete equally with non-EU-based providers as regards customer taxation.

 

 

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All this information is all well and good but it still does not change the fact that LL is not in the EU and is therefore not legally bound by EU legislation. 

Just becasue the EU may say it, it doesn't mean that it's right or even a valid law. Frankly, these laws are most likely written by people who don't have a clue about the internet.

In summary, the EU can say whatever they like but the reality is that they cannot control businesses in countries which are not even in the EU. The idea alone is completely absurd. I am certainly no lawyer but it doesn't take Einstein to work out that the law is unworkable and invalid. 

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You have asked why and I and others have shown you why they charge.  If you want it changed then like I said contact your local MEP to have the law changed though you will have every electronic service company in Europe opposed to you or you can lobby LL and ask them to absorb it.

Don't get me wrong I have sympathy with the argument being somebody who owned sims when this was first introduced and being basically wiped out of the rental business in one night.  Thousands of us argued our case at the time and LL were resolute that were was going to be no u-turn and that they had been absorbing the cost for too long.  

You will also find that a large amount of US customers do not like the idea that LL would in effect subsidise European customers' use of SL.  Some of them still hanker for a pure free market economy.

Finally it is an obtuse argument to say that somebody is not obliged to abide by the laws of a country where they trade.  Are you saying that gun manufacturers in the US can freely sell guns in the UK because they don't have to abide by UK laws?  European companies have to abide by US laws when operating there and it is the same in reverse.

As regards your example, then contact HMRC and ask them if said company is liable, or if not, why they are exempt.  I think I would accept as a more valid answer an institution backed up by law to tell me what it is rather than a company in another country who wants to sell me something.

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@Exavor.

LL, like all overseas companies, is not governed by EU law, and does not have to comply with EU law. You are right.

The EU produced some rules - not laws - for overseas companies to collect VAT, but it is entirely voluntary. They don't have to do it if they don't want to.

While LL had offices in the UK, they *had* to collect VAT from us. Now that they no longer have offices anywhere in the EU, they don't have to collect VAT from us unless they choose to. LL chooses to, and it is entirely their own choice.

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Drongle McMahon wrote:

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?

Enforcing it is pretty easy actually, and also the answer to Exavor's question. All the EU has to do is tell the banks, which do have a presence in the EU, to not transfer money to the company. That would make it so in order to do business with the company an EU citizen would either have to physically move their money out of the EU or use some shady money laundering service. And before anyone says that couldn't happen I'd like to point out that that is exactly what the US did to prevent US citizens from using online gambling websites.

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"Finally it is an obtuse argument to say that somebody is not obliged to abide by the laws of a country where they trade.  Are you saying that gun manufacturers in the US can freely sell guns in the UK because they don't have to abide by UK laws?  European companies have to abide by US laws when operating there and it is the same in reverse."

The UK law would only be broken when:

1. The firearm is imported into the UK
2. The owner of the firearm does not have a license to own or operate the said firearm in the UK

If US legislation permits the exportation of firearms, then no crime would be comitted in the USA.

In contrast, the services which LL provide do not leave the USA. Foreign residents simply connect to LL's servers in the US. The services are provided by physical equipment. No physical equipment is brought to UK or to EU grounds. 

I still stand by my opinion that because LL is not in the EU and does not operate in the EU, it is not governed by EU law. You know it makes sense.

The only reason for this silly EU rule is to make it more competitive for the benefit of EU businesses. (As non EU businesses were somewhat cheaper in the past.) However, what the EU government appears to have overlooked is that foreign countries like the US already charge their own form of sales tax. This means that European residents effectively pay two of the same taxes. Again, this is completely absurd. 

@Phil Deakins

Thanks for your input. If you could provide some supporting evidence, perhaps we could get somewhere with that. 

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i really don't know what else to tell you but to read the KB link that i put up before..

LL is choosing to  abide by the law in the EU..i guess they could choose not to abide by the law but they may end up having their offices removed from the UK then..

 

Isn't Linden Lab based in the United States? Why are you charging VAT for European Residents?

The best place to get full details about European legislation is at Europa, "the portal site of the European Union." It provides up-to-date coverage of European Union affairs and all legislation currently in force or under discussion.

The relevant section on that site is called "VAT: Special Arrangements Applicable to Services Supplied Electronically". (German) (Spanish) (French) (The Directives were implemented to create a level playing field for European Union (EU) businesses with regard to the indirect taxation of electronic commerce. Essentially, prior to this Directive non-EU-based companies providing electronic services to EU customers had an advantage in that they were not required to charge those customers VAT:

"The objective of this Directive is to introduce new harmonised rules and thus eliminate distortions in competition for radio and television broadcasting services and electronically supplied services within the EU. The absence of a clear and fair tax regime was a disincentive to investment and put EU business at a competitive disadvantage."

Second Life classifies as an electronically supplied service in the definition below:

"Electronically supplied services include services such as cultural, artistic, sporting, scientific, educational, entertainment, information and similar services as well as software, video games and computer services generally."

Under the Directive, Linden Lab is required to register with the tax authority and then to charge non-business customers VAT at the rate prevalent in their EU country:

"Non-EU businesses are able to register with a tax authority in a Member State of their choosing. They are required to charge VAT to non-business customers in the EU according to the standard tax rate in the Member State where the customer lives."

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Phil Deakins wrote:

@Exavor.

LL, like all overseas companies, is not governed by EU law, and does not have to comply with EU law. You are right.

The EU produced some rules - not laws - for overseas companies to collect VAT, but it is entirely voluntary. They don't have to do it if they don't want to.

While LL had offices in the UK, they *had* to collect VAT from us. Now that they no longer have offices anywhere in the EU, they don't have to collect VAT from us unless they choose to. LL chooses to, and it is entirely their own choice.

they do have offices in the UK..just not sales offices..

it's probably relays for servers or something..

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@Ceka Cianci

My argument is quite simple. "LL is not based in the EU, nor does it operate in the EU. Therefore, it should not have to abide by EU rules & legislation." The EU can say whatever they want. They can make up whatever laws they dream of. However, what they can't do is make it mandatory for non member states (i.e. countries outside of the EU) to abide by these laws. They simply do not have the power to do that, even if they wanted to. They DO NOT govern the world. 

If it is proven that LL does indeed have offices in the EU, I will give up because it will blow my argument out of the water, However, I still believe that LL no longer has offices in the EU. 

Their contact page states:


"945 Battery Street

San Francisco, CA 94111
+1 (415) 243-9000
Note that this number is not Second Life Support.

Fax: 415.243.9045

We also have offices in Seattle, Davis, Boston, and Reston.

http://lindenlab.com/contact 

This implies (but does not necessarily prove) that they do not have offices outside of the USA. If that is the case, they don't have to abide by EU legislation & rules. It makes no difference whether or not they purchase various services from the EU. (I'm sure they do) - as long as they don't operate in the EU as a business.



 

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Exavor Diesel wrote:

However, what the EU government appears to have overlooked is that foreign countries like the US already charge their own form of sales tax. This means that European residents effectively pay two of the same taxes. Again, this is completely absurd. 

This is false for the US at least. The US has not federal sales tax for online transactions and the state level sales tax only applies if the seller has a physical location with in the same state as the buyer, which is obviously impossible for people that live outside of the US. So you aren't paying any US sales tax, tho some of the money you give LL goes towards other taxes, such as property tax, income tax and payroll tax, but there's no getting around that.

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Exavor Diesel wrote:

@Ceka Cianci

My argument is quite simple. "LL is not based in the EU, nor does it operate in the EU. Therefore, it should not have to abide by EU rules & legislation."

If it is proven that LL does indeed have offices in the EU, I will give up because it will blow my argument out of the water, However, I still believe that LL no longer has offices in the EU. 

Their contact page states:

 

"945 Battery Street

San Francisco
, CA 94111

+1 (415) 243-9000

Note that this number is not 
.

Fax: 415.243.9045

We also have offices in
Seattle
,
Davis
,
Boston,
and
Reston
.

 

This implies (but does not necessarily prove) that they do not have offices outside of the USA. If that is the case, they don't have to abide by EU legislation & rules. It makes no difference whether or not they purchase various services from the EU. (I'm sure they do) - as long as they don't operate in the EU as a business.

 

 

 

 

they just don't have Sales offices in the EU..sorry for this font..these forums suck for fonts placement..

 

But doesn't Linden Lab have offices in Europe?

Yes but all Second Life Residents are customers of the US corporate entity.

 

the offices they do have there are registered as non-resident.

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The law states that tax is liable where the service is consumed.  Therefore, that would mean wherever your PC is located when you login to SL, the origination or source is of no consequence to the law.  

On a general point, taxes are easier and more efficient to collect when you have less and more stationary organisations to collect them from.  Therefore, your employer deducts your taxes and businesses charge you VAT rather than any tax collector chasing down every single person in the country to collect taxes individually.

Anyhoos, I'm away to do something more interesting than talking about tax legislation, banging nails into concrete with my head would be a starter, enjoy flogging this dead horse.

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I knew there was something I was missing in my previous post. I have since edited it in order to cover the expected response from Sy Beck but I was a little late.

 

"But doesn't Linden Lab have offices in Europe?

Yes but all Second Life Residents are customers of the US corporate entity."

That is from the wiki. I would take it as a pinch of salt. (not even that in some cases) The wiki is often out of date and IIRC, it's no longer maintained except for LSL scripting articles. I don't know why LL scrapped the future of the wiki in favour of the knowledge base because the concept of a wiki seems better to me. That's perhaps best for another thread though.  

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Exavor Diesel wrote:

I knew there was something I was missing in my previous post. I have since edited it in order to cover the expected response from Sy Beck but I was a little late.

 

"But doesn't Linden Lab have offices in Europe?

Yes but all Second Life Residents are customers of the US corporate entity."

 

That is from the wiki. I would take it as a pinch of salt. (not even that in some cases) The wiki is often out of date and IIRC, it's no longer maintained. I don't know why LL scrapped the wiki in favour of the knowledge base because the concept of a wiki seems better to me. That's perhaps best for another thread though.  

you have to look for thier official seal  to make sure it is not resident edited wiki..the last time it was updated and this is from the bottom of the page

This page was last modified on 11 August 2011, at 14:17.

 

if you go back to that page you will see the seal which is a cube that says linden lab under it..it is the official kb ..it is just the extended KB..and it is kept up to date..

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leliel Mirihi wrote:


Exavor Diesel wrote:

However, what the EU government appears to have overlooked is that foreign countries like the US already charge their own form of sales tax. This means that European residents effectively pay two of the same taxes. Again, this is completely absurd. 

This is false for the US at least. The US has not federal sales tax for online transactions
and the state level sales tax only applies if the seller has a physical location with in the same state as the buyer,
which is obviously impossible for people that live outside of the US. So you aren't paying any US sales tax, tho some of the money you give LL goes towards other taxes, such as property tax, income tax and payroll tax, but there's no getting around that.

This is only part of the picture.  The seller is required to collect sales tax from you IF you reside in the same state.

Now I can only speak for two states where I have resided, but when you file your yearly State income tax the forms include a line for reporting on line purchases from out of state that you are required to report and pay state income tax.  I don't know what percentage of people comply with this rule, but I'd bet it is pretty small.

The States claim that they do it in order to provide a more level playing field for their in-state business.  And I also have a bridge for sale.....................

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Perrie Juran wrote:

This is only part of the picture.  The seller is required to collect sales tax from you IF you reside in the same state.

Now I can only speak for two states where I have resided, but when you file your yearly State income tax the forms include a line for reporting on line purchases from out of state that you are required to report and pay state income tax.  I don't know what percentage of people comply with this rule, but I'd bet it is pretty small.

The States claim that they do it in order to provide a more level playing field for their in-state business.  And I also have a bridge for sale.....................

It gets even more complicated that that. For instance NY requires people that don't live in NY to pay income tax for money earned from an NY company for work done out side of NY (telecommuting). Taxes are the one thing guarantied to send you to an early grave.

But none of that applies to people living out side of the US.

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Ceka Cianci wrote:

they do have offices in the UK..just not sales offices..

it's probably relays for servers or something..

That would make it different then. Earlier this afternoon, I called "billing" (it's now in the US and no longer in the UK), and asked if LL has any offices in the EU. I was told that they don't have any. If LL has a presence in the EU, then it would make it different.

I looked into this topic a few years ago, and having I read all the online documentation I could find, it appeared to me that the EU did set up something for overseas companies to collect VAT from EU residents, but it was voluntary, simply because no country (or the EU) can make laws that people in other countries must abide by. It can't be done, so it has to be voluntary.

What a country can do is try to prevent their own people from receiving a service, such as SL, from a company in another country if that company won't collect VAT. Someone mentioned that possibility, using banks and gambling as an example. But companies in other countries do not have to abide by foreign laws (unless they take up a presence in the country, of course).

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I think we should put the US sales tax thing aside. My comment on that was clearly incorrect and was based on a previous comment someone had made in this topic. It's not directly related to the topic at hand. 

I'm awaiting for LL's response to my ticket regarding the VAT issue. I've asked for it to be escalated. I'm not expecting it to have much impact but if enough people kick up a fuss (and continue to do so - in a constructive manner), I'm sure LL will consider exploring their options once again.

The article someone linked above (http://deltango.wordpress.com/2008/08/24/cogs-in-the-vat-machine) is very interesting. It looks at it from a slightly different angle as it gives a good insight into the possible implications to sales on SL, with some exceptionally good analogies. One could say it's all old news now but that's not to say we should let it blow over.

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Phil Deakins wrote:


Ceka Cianci wrote:

they do have offices in the UK..just not sales offices..

it's probably relays for servers or something..

That would make it different then. Earlier this afternoon, I called "billing" (it's now in the US and no longer in the UK), and asked if LL has any offices in the EU. I was told that they don't have any. If LL has a presence in the EU, then it would make it different.

I looked into this topic a few years ago, and having I read all the online documentation I could find, it appeared to me that the EU did set up something for overseas companies to collect VAT from EU residents,
but it was voluntary
, simply because no country (or the EU) can make laws that people in other countries must abide by. It can't be done, so it has to be voluntary.

What a country can do is try to prevent their own people from receiving a service, such as SL, from a company in another country if that company won't collect VAT. Someone mentioned that possibility, using banks and gambling as an example. But companies in other countries do not have to abide by foreign laws (unless they take up a presence in the country, of course).

you should call them back and put them on the spot and say..why does it say you do in the vat tax section of the extended KB hehehehehehe

just to see if they stutter lol

they may have offices there but not something public..being non-resident they may be looking at them as U.S. offices..

i would check with them and see what they mean by saying  in one place that they do have them and on the phone they say they do not..

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Exavor Diesel wrote:

I think we should put the US sales tax thing aside. My comment on that was clearly incorrect and was based on a previous comment someone had made in this topic. It's not directly related to the topic at hand. 

I'm awaiting for LL's response to my ticket regarding the VAT issue. I've asked for it to be escalated. I'm not expecting it to have much impact but if enough people kick up a fuss (and continue to do so - in a constructive manner), I'm sure LL will consider exploring their options once again.

The article someone linked above (
) is very interesting. It looks at it from a slightly different angle as it gives a good insight into the possible implications to sales on SL, with some exceptionally good analogies. One could say it's all old news now but that's not to say we should let it blow over.

i was trying to figure out who ran that site..i was liek..omg i know this site who the hell's site is this.. then looked at the link..it's Deltango's LOL

then my hair returned back to brunette and i feel much better now hehehe

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To be honest, that's not really fair on them. They are front line workers and with respect, they're probably paid far less than those who make these decisions. They're simply not likely to have answers to hand, other than what's said in the wiki. (which as we know, is questionable material) It's not their fault and I'm sure many of them will understand our concerns.

The best channel is probably via the ticket system because things can be escalated and hopefully not brushed under the carpet. However, I have been known to be somewhat of an optimist. 

 

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Exavor Diesel wrote:

To be honest, that's not really fair on them. They are front line workers and with respect, they're probably paid far less than those who make these decisions. They're simply not likely to have answers to hand, other than what's said in the wiki. (which as we know, is questionable material) It's not their fault and I'm sure many of them will understand our concerns.

 

The best channel is probably via the ticket system because things can be escalated and hopefully not brushed under the carpet. However, I have been known to be somewhat of an optimist. 

 

 

oh no phil more than likely knows i was goofing around..

about all you can do is what you are doing..make a ticket..unless rodvik decided to stop in and answer it for us..which could be possible..he jumps in these threads every once in awhile hehehehe

 

as far as the extended knowledge base..it's up to date and official..thats where you get the fine details that the blog knowledge base doesn't have..

you will find information there that you cannot find from the blog KB..and much more detailed..

 

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Ceka Cianci wrote:

you should call them back and put them on the spot and say..why does it say you do in the vat tax section of the extended KB hehehehehehe

just to see if they stutter lol

I did call them back - earlier. On the first call, I asked if they have offices in the EU, and was told, no. Then I realised that I should have asked, why the VAT then? So I called again. The girl at the other end talked about the law but wouldn't discuss it with me. And I don't blame her. She's "billing" and doesn't know the ins and outs of LL's decisions. I would think they'd know even less about what's written in the KB.

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