The big FAT VAT issue

[Innula Zenovka]

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Exavor Diesel wrote:

 

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

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For the same reason an American resident buying goods or services from an EU-based company doesn't have to pay VAT on them -- the tax is charged according to where the goods and services are supplied, not where the company supplying them is based.

It used to be the case that companies outside the EU didn't have to charge VAT.   But this changed later that year (it's changed since, but that's when the liability first started), and as far as HMRC and European Law are concerned all your and my payments to LL include VAT at the relevant rate, which LL are collecting on behalf of the relevant EU tax authorities and have to return to them.  

If LL don't pay up, then HMRC can go after the unpaid tax via LL's payment processors before the money leaves the jurisdiction and could, I assume, take advantage of whatever bilateral arrangements exist between the EU and USA for prosecuting tax fraud.

[Exavor Diesel]

Yep, we know that but it doesn't explain why LL has to oblige to this. What's *legally* stopping them from ignoring it?

Nobody has explained the logic behind this here. With this logic, it would suggest that the EU could make up *any* legislation under the sun and then expect every country around the globe to abide by it. Why don't they do that? Simply because we all know that the EU government can only govern the EU and not the entire world. The EU has absolutely no control over countries which are not within the EU, including the United States. (Or under some kind of agreement like Norway - let's not get into that one though.)

I think some people are having trouble getting their heads around the concept that "Just because the EU says it's the law, it doesn't mean to say it's a valid law." Of course, nobody is above the law so to speak, but they may live in a place where the law simply does not apply!

I would love to see Iran try to impose many of its laws on the USA. If the government of Iran suddenly told you that you could not go outside in the US without wearing a veil, would you expect people to take any notice? Of course they wouldn't! Why? Because it would mean didly sqaut in your country as Iran has no control over what the US does. Same principle should apply to the EU government or anyone else for that matter.  

[Phil Deakins]

The Out-Law page is very interesting, Innula, but the fact remains that no country can make laws that people in other countries have to abide by, and so companies in the US do not have to collect VAT unless they choose to do so. Most don't choose to do so, and there's nothing the EU can do about it. LL does choose to do so, and it's entirely their own choice, unless they really do have a business presence in the EU.

[Ceka Cianci]

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Exavor Diesel wrote:

Yep, we know that but it doesn't explain why LL has to oblige to this. What's *legally* stopping them fron ignoring it?

Nobody has explained the logic behind this here. With this logic, it would suggest that the EU could make up *any* legislation under the sun and then expect every country around the globe to abide by it. Why don't they do that? Simply because we all know that

the EU government can only govern the EU and not the entire world

. The EU has absolutely no control over countries which are not within the EU, including the United States. (Or under some kind of agreement like Norway - let's not get into that one though.)

I think some people are having trouble getting their heads around the concept that "Just because the EU says it's the law, it doesn't mean to say it's a valid law." Of course, nobody is above the law so to speak, but they may live in a place where the law does not apply!

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i had said that LL chose to abide by the EU law..

i said it because they also said it..

the money is not staying in LL's pocket so it's not like they are getting profit from it..i'm sure they probably feel it's a good thing to do..maybe it's like one hand washing the other more than it has to do with law..a lot of businesses try to make things a bit easier on themselves rather than harder..i'm sure the EU could make it harder  on them..

maybe even cut off the EU market..that would kind of suck for you guys and for us as well in more ways than one..

ETA: LL doesn't have to abide by the law and EU doesn't have to let them do business there if they decided not to pay the Vat..

my head has been wrapped around it since LL decided to pass it on to the user rather than paying it themselves anymore..

a lot of people were really upset back then and left or slowed down on spending..

i didn't like it coming to them either..a lot of my friends are from the EU back then..it was no fun for them at all..

 

[Phil Deakins]

When they had a business presence here, they *had* to do it. They didn't have a choice except to remove themselves from here. If they still have a business presence here, they still have to do it.

 

@whoever posted the blog link

I thought the blog post was interesting. I've no idea whether her thinking holds water or not, but she sounded like she knew what she was talking about. I liked the analogy of a restaurant turning away customers to save on electricity

[leliel Mirihi]

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Phil Deakins wrote:

The Out-Law page is very interesting, Innula, but the fact remains that no country can make laws that people in other countries have to abide by, and so companies in the US do not have to collect VAT unless they choose to do so. Most don't choose to do so, and there's nothing the EU can do about it. LL does choose to do so, and it's entirely their own choice, unless they really do have a business presence in the EU.

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A company outside of the EU doesn't have to abide by EU law, but in order to do business with EU citizens money has to be transferred from EU to where ever. The EU has full control over the money transfers, they can seize any assets they want, impose fines on banks that transfer money to companies that don't abide by EU laws, etc. So they can't directly force LL to collect VAT, but they can prevent LL from getting any money from EU citizens until they do. 

[Phil Deakins]

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Ceka Cianci wrote:

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

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@Exavor

Ceka seems to have taken to razzing me and goofling around with me - which is rather nice. I hope she'll tell if and when the earth moves for me :smileysurprised:

[Innula Zenovka]

I don't know what most people do or don't do, Phil.

But I do know that if LL didn't pay VAT on what they bill in the EU, then HMRC would have very little difficulty in obtaining a court order here, where British, not American, law applies, to reclaim the unpaid VAT, plus appropriate penalties, direct from funds belonging to LL after they'd left EU-based customers' accounts but before they left the jurisdiction.   LL don't have an EU presence, but their payment processors -- Visa and Mastercard, for example -- most certainly do, and have to abide by EU law and do what the courts tell them.

And I suspect LL wouldn't want the hassle and repercussions of VAT Enforcement Officers turning up at the EU offices of their bankers and payment processors waving court orders and going about tax fraud.

[Exavor Diesel]

Does anyone have any evidence that says that says that non EU member states only have to pay VAT if they choose to? I don't have this and if I did, we would have a much stronger case. 

 

@Ceka Cianci

 "LL doesn't have to abide by the law and EU doesn't have to let them do business there if they decided not to pay the Vat.."

I doubt there would be any consequences there because fortunately the EU has never played a big part in censorship. (compared to other nations that is) I do not think our society would tolerate it in the slightest and given the current state of the EU, I doubt they would make any changes to this at the moment because it would only risk diverting attention from where it's most needed right now.  

[Phil Deakins]

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leliel Mirihi wrote:

A company outside of the EU doesn't have to abide by EU law, but in order to do business with EU citizens money has to be transferred from EU to where ever. The EU has full control over the money transfers, they can seize any assets they want, impose fines on banks that transfer money to companies that don't abide by EU laws, etc. So they can't directly force LL to collect VAT, but they can prevent LL from getting any money from EU citizens until they do. 

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I did say that they could do things like that. I think they'd find it rather difficult though, with things like PayPal around. It would be easier to have IPs block SL.

[Ceka Cianci]

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Phil Deakins wrote:

When they had a business presence here, they *had* to do it. They didn't have a choice except to remove themselves from here. If they still have a business presence here, they still have to do it.

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thats the thing..we don't know if they do or not..they state having  offices there in the official extended KB that was updated just this past august 2011..

that was only 3 months ago..they say they are non resident offices..maybe they will let this person know through thier ticket..

i would like to know myself for future threads..because it does seem to be a factor for some..

they could just be paying it because it makes it easier to do business in the EU rather than fight the EU hehehe

 

[Ceka Cianci]

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Phil Deakins wrote:

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Ceka Cianci wrote:

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

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@Exavor

Ceka seems to have taken to razzing me and goofling around with me - which is rather nice. I hope she'll tell if and when the earth moves for me :smileysurprised:

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*licks her finger and places it on her hip* Tsssssssssss

hehehehe

[Phil Deakins]

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Innula Zenovka wrote:

I don't know what most people do or don't do, Phil.

But I do know that if LL didn't pay VAT on what they bill in the EU, then HMRC would have very little difficulty in obtaining a court order here, where British, not American, law applies, to reclaim the unpaid VAT, plus appropriate penalties, direct from funds belonging to LL after they'd left EU-based customers' accounts but before they left the jurisdiction.   LL don't have an EU presence, but their payment processors -- Visa and Mastercard, for example -- most certainly do, and have to abide by EU law and do what the courts tell them.

And I suspect LL wouldn't want the hassle and repercussions of VAT Enforcement Officers turning up at the EU offices of their bankers and payment processors waving court orders and going about tax fraud.

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I agree that LL wouldn't want the hassle.

In my case, HMRC (whoever that is) wouldn't have any success at all by trying to do what you described. I haven't paid any real money to LL since the beginning of 2007. L$ converted to US$ has paid for everything since then, and after that, LL has been paying to me. But that's just me. There are plenty of EU people who do pay real money to LL.

[Phil Deakins]

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Exavor Diesel wrote:

Does anyone have any evidence that says that says that non EU member states only have to pay VAT if they choose to? I don't have this and if I did, we would have a much stronger case. 

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It's me who keeps saying that it's voluntary, but I can't point you to any documentation. It's what I read in the documentation a few years ago.

But if you think about it, it *has* to be voluntary, simply because we cannot make laws that other countries have to abide by.

[Ceka Cianci]

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Exavor Diesel wrote:

Does anyone have any evidence that says that says that non EU member states only have to pay VAT if they choose to? I don't have this and if I did, we would have a much stronger case. 

 

@Ceka Cianci

 

 "LL doesn't have to abide by the law and

EU doesn't have to let them do business there if they decided not to pay the Vat.

."

 

I doubt there would be any consequences there because fortunately the EU has never played a big part in censorship. (compared to other nations that is) I do not think our society would tolerate it in the slightest and given the current state of the EU, I doubt they would make any changes to this at the moment because it would only risk diverting attention from where it's most needed right now.  

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if it's an EU law then how could it be censorship?

from my understanding  it is to make the playing field more level for EU businesses in the same market..

as i said LL is not keeping it ..so there has to be a good reason for sending it back over...i'm sure they are not taking it from you because they enjoy pissing off the EU market hehehehe

 

[Innula Zenovka]

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Phil Deakins wrote:

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Exavor Diesel wrote:

Does anyone have any evidence that says that says that non EU member states only have to pay VAT if they choose to? I don't have this and if I did, we would have a much stronger case. 

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It's me who keeps saying that it's voluntary, but I can't point you to any documentation. It's what I read in the documentation a few years ago.

But if you think about it, it *has* to be voluntary, simply because we cannot make laws that other countries have to abide by.

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No, but we can, and frequently do, enter into treaty arrangements with other countries for mutual assistance in investigating and prosecuting financial crime.   I don't what treaty arrangements exist between the EU and the USA for helping each other out prosecuting tax fraud involving both jurisdictions, but I'd be surprised if there aren't any.

[Ceka Cianci]

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Phil Deakins wrote:

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Exavor Diesel wrote:

Does anyone have any evidence that says that says that non EU member states only have to pay VAT if they choose to? I don't have this and if I did, we would have a much stronger case. 

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It's me who keeps saying that it's voluntary, but I can't point you to any documentation. It's what I read in the documentation a few years ago.

But if you think about it, it *has* to be voluntary, simply because we cannot make laws that other countries have to abide by.

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here is what i was looking at..

 

 

Why is Linden Lab discriminating against Europeans?

We are not discriminating against Europeans. We are merely trying to abide by the laws that are applicable to all non-EU based providers of Electronically Supplied Services.

 

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.

 

wouldn't being registered in the EU as a non resident business in the EU still be considered a presence in the EU?

[Wildcat Furse]

if I am correct that Tax law is only due as from Jan '15;

http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/vat_on_services/index_en.htm

from 1 January 2015: B2C telecommunications, broadcasting and electronically supplied services will be taxed at the place where the private customer is established, has his permanent address or usually resides.
Example 53: When webhosting is supplied to a private customer living in Lisbon, Portuguese VAT must be charged irrespective of whether the supplier is established in Portugal, in another EU Member State or outside the EU.

*meows*

 

[Phil Deakins]

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Ceka Cianci wrote:

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Phil Deakins wrote:

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Exavor Diesel wrote:

Does anyone have any evidence that says that says that non EU member states only have to pay VAT if they choose to? I don't have this and if I did, we would have a much stronger case. 

---

It's me who keeps saying that it's voluntary, but I can't point you to any documentation. It's what I read in the documentation a few years ago.

But if you think about it, it *has* to be voluntary, simply because we cannot make laws that other countries have to abide by.

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here is what i was looking at..

 

 

Why is Linden Lab discriminating against Europeans?

We are not discriminating against Europeans. We are merely trying to abide by the laws that are applicable to all non-EU based providers of Electronically Supplied Services.

 

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.

 

wouldn't being registered in the EU as a non resident business in the EU still be considered a presence in the EU?

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No. LL registered for VAT when they were here. They had to do it because they were here. They have to collect VAT while they are registered, but, if they are no longer in the EU, they can deregister.

 

 

[Exavor Diesel]

I think that is slightly different. By the current EU law, LL could charge us any amount of VAT as long as it corresponds with the VAT rate in at least ONE designated EU country. In theory, they could charge all European residents the UK VAT rate, which is 20%. This would then benefit people living in Sweden (who would otherwise pay their own VAT rate at 25%) but on the other hand, it wouldn't benefit residents in other countries like Cyprus because their standard VAT rate is 15%. LL already abide by the new 2015 legislation by applying the VAT rate which corresponds with the one in the country of residence. (i.e. if you live in the UK, you pay the UK VAT rate. If you live in France, you pay the French VAT rate etc etc.)

It's all a load of BS however you look at it. I have spent hours reading so much crap on the europa.eu website. Much of it is open to interpretation meaning that I have to cross reference much of what I read in order to avoid getting misled by the very site which is supposed to keep us all informed...

I am starting to see why LL wanted to save themselves the hassle by just abiding by with whatever crap the EU come up with. That said, the fact remains. LL is not governed by the EU and I've yet to see anyone shoot that argument down. 

. 

 

 

[Wildcat Furse]

more to read here :matte-motes-big-grin-wink:

http://www.hypergridbusiness.com/2011/04/does-linden-lab-put-its-economy-first/

One other action that year also sparked controversy and the in-world economy – the collection of European Union’s VAT tax. Originally, Linden Lab absorbed the collection of the Value Added Tax (VAT), but Linden Lab started to collect it from those customers living in the European Union on all types of transactions, including land purchase, land maintenance, and membership fees that are paid in real world currency. It also tried to collect any theoretically applicable VAT on Linden Dollar transactions between individual Second Life residents.

The added VAT fee made many Europeans question whether they should leave Second Life, transfer their lands to American partners such as American land barons, or work in occupations that did not require paying fees to Linden Lab.

Some European Second Life users have claimed that Linden Labs forced this tax on them without notice and is charging tax on property that doesn’t really exist, thereby making the tax illegal. However, according to a 2003 E.U. directive, VAT is a tax on both goods and services, including digital services, thereby making it legal to collect VAT on a digital service like Second Life.

However, that same E.U. directive also states that European businesses should be able to reclaim VAT paid for business items so that the VAT cost does not cripple their ability to compete in non-European markets. The problem lies in the fact that Second Life does not offer a way for a business holder to establish whether a customer is European or not, which prevents that business from collecting VAT from Europeans.

What complicates the matter further is that, the same directive does not state whether Europeans are required to pay VAT in Second Life, since Linden Dollars are not legally classified as a currency. If Linden dollars were a recognized currency, VAT would only be chargeable on the conversion fees and not on the whole transaction. However, this would open Linden Labs up to much oversight by European financial regulators and require compliance with the Electronic Money Directive and associated anti-terrorist financing and anti-money laundering legislation, which would likely lead to greater changes to Second Life and more costs to its users.

*meows*

[Exavor Diesel]

I think one way for LL to resolve this issue without putting them at risk of conflicting with HMRC, is to simply allow residents to pay for tier in Linden Dollars instead of USD. Current government legislation cannot apply VAT to virtual currency AFAIK. Of course, the exchange rates fluctuate on a daily basis so they would need to create a system that automatically does the conversions. They have this sort of system in place already for LindeX transactions.

Of course, LindeX transactions would still be subject to VAT but this would still be a major advantage to current and prospective Europeans in the virtual land sales business considering they would not be using LindeX to buy Lindens.

[Ceka Cianci]

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Exavor Diesel wrote:

I think that is slightly different. By the current EU law, LL could charge us any amount of VAT as long as it corresponds with the VAT rate in at least ONE designated EU country. In theory, they could charge all European residents the UK VAT rate, which is 20%. This would then benefit people living in Sweden (who would otherwise pay their own VAT rate at 25%) but on the other hand, it wouldn't benefit residents in other countries like Cyprus because their standard VAT rate is 15%. LL already abide by the new 2015 legislation by applying the VAT rate which corresponds with the one in the country of residence. (i.e. if you live in the UK, you pay the UK VAT rate. If you live in France, you pay the French VAT rate etc etc.)

It's all a load of BS however you look at it. I have spent hours reading so much crap on the europa.eu website. Much of it is open to interpretation meaning that I have to cross reference much of what I read in order to avoid getting misled by the very site which is supposed to keep us all informed...

I am starting to see why LL wanted to save themselves the hassle by just abiding by with whatever crap the EU come up with. That said, the fact remains.

LL is not governed by the EU

and I've yet to see anyone shoot that argument down. 

 

. 

 

 

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I don't think we are trying to shoot it down..i think we are trying to figure it out as well hehehehe

as far as we know there may still be some sort of offices over there..

i'm wondering..if LL did not pay the tax..then will they come after you guys for it since  it is a consumer tax?

 

[Ceka Cianci]

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Exavor Diesel wrote:

Of course, LindeX transactions would still be subject to VAT but this would still be a major advantage to current and prospective Europeans in the virtual land sales business considering they would not be using LindeX to buy Lindens.

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actually i believe lindex is transactions between users..

 

When I purchase L$ on the LindeX, is there a VAT applied?

No, because you are purchasing L$ from another Resident, not from Linden Lab.

[RudolphUkka]

Is there a

*

accountant around here? No, I didn't

*

think so.

***

Rudi

***