Governor Marley

“tax doesn’t have to be taxing” is the slogan from the UK tax authorities, oh yes it does is the answer from UK citizens. However it’s not just in the UK where tax is taxing. There’s a whole plethora of ways where tax authorities are looking to tax their citizens and in terms of virtual worlds, they’re starting to dip their toes in the waters and work out how to tax those who run virtual business.

Second Life is one such virtual world, one whereby Europeans have been battered by value added tax since October 2007. Well people have to pay taxes right? Moaning about them is silly, but, and it’s a big but, when VAT was introduced to Second Life it created a major anomaly for European users, and it’s in this area that the tax authorities need to grow up. I’ll touch upon areas where users need to grow up later.

VAT on electronic services was introduced to “level the playing field” for European business. Prior to this change in legislation we had the situation whereby a European firm had to charge VAT on electronic services, but American firms selling to European users did not. Ergo European business complained and rightly so, their bills were higher and the law was changed and sweetness and light blossomed, foreign service providers who crossed a certain turnover threshold were now being requested to charge VAT on their products, ensuring European firms weren’t disadvantaged…until virtual worlds came into the equation.

Virtual worlds complicate matters, they cause chaos. Now a European small business in Second Life is billed tier payments plus VAT every month, putting them at a disadvantage. Inworld payments are not considered services for tax purposes (nor should they be at this moment in time, they’d be impossible to audit). This means a small European business cannot offset VAT as they usually would, meaning the playing field is no longer level, indeed it’s the very playing field that the legislation was brought into prevent. So what do the European Union tax experts say when presented with this disparity:

“One consequence is that a foreign supplier faces essentially the same tax obligations as an EU supplier, thus assuring a level playing field for all.”

You see, when faced with disparity, they don’t listen. They’re too busy with their noses in the tax trough to realise the situation is the exact situation that the legislation was introduced to prevent. Of course there’s not enough business players in virtual worlds yet for pressure to be applied. European politicians don’t answer their citizens, well mine doesn’t. My UK represenatative answered me, but told me it was a European issue, as did the UK tax authority, but my European elected representative couldn’t be bothered to answer and when I finally get an answer from a European bureaucrat, they completely ignore the issue. They need to grow up and meet people halfway. Charge VAT on the premium membership, fine. Not on the monthly tier costs that cause such disparity.

Then there’s the other side of the coin, tax, employment and legislation and this is an area where users need to grow up.

Users seem to take the virtual aspect a bit too far. Some people employ and pay people with real money and then act surprised when the tax authorities point out they’re employing someone. If you’re using real money, you can’t just shrug your shoulders and shirk responsibility. Eventually the tax authorities will tax virtual cash too, especially when in the case of Second Life it has real world value. There needs to be a grown up debate about the implications of this.

We don’t need the authorities to take a hammer to crack a nut, we need sensible, rational and grown up debate. How do we ensure people aren’t being exploited or that companies aren’t circumventing their responsibilities. How do we ensure employees have rights without bringing virtual worlds crashing down like a pack of cards, how do we inject some common sense into the implications of what’s happening here and where this is heading?

Taxing Gold in World of Warcraft is silly and should be struck off the register, the only real world value of WoW gold is via an illegal black market that breaches the TOS. However Entropia Universe? Second Life? They are a different kettle of fish and need a different approach.

Then we come to the tricky matter of employment laws. Should a virtual world employee be paid a minimum wage? Paying someone USD$10 an hour is going to be costly for most virtual world business at this point in time, it will send people running for the hills, but some employment laws and rights need to be observed. Just because it’s virtual doesn’t mean rights should be ignored but the question is whose rights do we follow? An American employing a German should follow which laws?

Then there are issues of copyright, people seem to think it doesn’t apply because it’s virtual. Streaming copyrighted music and images into virtual worlds is seen as fair game, and yet quite clearly it’s not fair game, this is where users need to grow up. Accept responsibility, do the right thing and stop ignoring the rights of content creators.

Everyone needs their heads banging together, but with sensible engagement, sensible debate and common sense solutions can be reached. However I won’t hold my breath awaiting that situation.