European residents angry, but not leaving, over VAT
By Eric Reuters
SECOND LIFE, Oct 2 (Reuters) - European users of Second Life bombarded Linden Lab executive Robin Harper on Tuesday with angry questions about the company’s plan to charge Value Added Tax (VAT), but many said they plan to continue on despite higher costs.
Last week, Linden Lab sent notices to its customers residing in the European Union that their next billing statement would include a VAT charge, a tax levied on goods by EU authorities. The charges apply only to real-world payments to Linden Lab for items such as premium account and land use fees, but not to Linden dollar transactions between users.
“We consulted with a number of highly-qualified tax advisors, and the bottom line is that we must charge VAT to EU residents in order to comply with EU tax regulations,” Harper wrote in a blog post. “We’re sensitive to Residents’ opinions and regret that some of you are surprised, but we have no choice other than to comply with applicable laws.”
Speaking in office hours that maxed her sim’s avatar capacity, Harper deferred questions about the specifics of the new policy to Linden Lab’s finance department. An overflow capacity of attendees piled into adjacent regions, and shouted questions into the forum.
The new VAT charge levies additional costs on EU users of Second Life of 15 to 25 percent or more, depending on their country of residence. Over 34 percent of Second Life’s active users hail from the European Union, according to Linden Lab statistics.
“We cannot compete on the same level with USA people,” said Nicoleta Georgescu (Second Life: BootyLSH Carter), of Galati, Romania. Georgescu will pay a VAT premium of 19 percent on his tier fees. “I was planning to open a business and sell what I build. I’m not sure anymore.”
The new VAT fees come at a time when Second Life’s growth is already slowing in Europe. The number of active users in Germany, Britain, France, Italy, Spain and the Netherlands all declined from July to August, according to Linden Lab statistics.
Despite the outcry, many of the attendees on Tuesday predicted that few EU residents would desert Second Life altogether. Their financial pain may have been eased by the recent decline in the U.S. dollar which has made Second Life fees less expensive for those outside the United States.
“I think a very small minority will pull the plug,” said Hanno Tietgens (Second Life: Xon Emoto) of Hamburg, Germany. Tietgens runs the Hamburg islands region of Second Life, and is organizing a conference to bring thousands of new German residents into the virtual world. “Nobody will like it, but nobody who was motivated to stay until now has a good reason to be chased off.”
“I will stay here, since there is nothing else that compares at the moment,” said Melanie Milland, a British Second Life resident who saw her fees jump by 17.5 percent.
Lingering resentment over the Second Life gambling ban was also cited by European residents. Internet gambling is illegal in the United States, but regulations in Europe are more liberal.
“A customer cannot be in two places at once,” said Gomez Bracken, a Second Life resident from Manchester, UK, who didn’t want to disclose his real-life identity. “It’s unfair that US residents only have to be governed by US law when EU residents are expected to abide by laws in two parts of the world simultaneously.”
It’s unclear if Linden Lab had been paying European VAT for its customers previously, or if it would have to pay back taxes now. European residents complained that prior invoices from Linden failed to include a VAT registration number, necessary for Europe-based businesses to reclaim tax overcharges.
Harper said she hoped Linden’s tax experts would be available to field questions from residents next week. But she said the new VAT policy went into effect “because we crossed some sort of threshold in terms of the number of European customers.”
