VAT in Europe and legal issues

campaignPeople have raised the question of whether the way European residents are being billed for VAT is, in fact, in accordance with the laws of those countries.

There seemed to be two points on which people are reaching general agreement:

1) EU Directives mean that VAT can (and perhaps should) be charged to comply with EU law.

2) The way in which Linden Lab have done and are doing this is in danger of infringing EU (and possibly national) laws.

On this second point, I can’t speak for all countries but, in fact, I received a message from someone who has done some research into the position in the UK, looking at the relevant Statutory Instruments:


She writes:
I think that we would all have a case to refuse to pay until they alter their billing information on the website and in-world. I bought some land just a few days before and the “buy land” dialogue box came up with the usual “This will keep your tier at $40”; it did not say “… at $40 plus VAT at the rate charged by the country in which you reside”.

This is not legal: the Statutory Instrument [S.I. 2005 No.2705: The Consumer Protection (Code of Practice for Traders on Price Indications) Approval Order 2005] states in Part 2. Actual Price to the Consumer, sub-section 2.2 Incomplete information and non-optional extras:

“Value Added Tax
(i) Price indications to consumers

2.2.7 All price indications you give to private consumers, by whatever means, should include VAT.

(ii) Price indications to business customers

2.2.8 <business to business info snipped>. If you also conduct business at that outlet or through these advertisements with consumers, however, you should make it clear that the prices exclude VAT and you

(a) display VAT inclusive prices with equal prominence; or

(b) display prominent statements that the quoted prices exclude VAT and state the appropriate rate. It should be noted that VAT inclusive prices for all goods offered by traders to consumers are required by the Price Marking Order 2004[8] (further information can be obtained from your local Trading Standards Service).”

[8] refers to Statutory Instrument 2004/102 but I haven’t had a chance to look at that yet.]


I did have a look at Statutory Instrument 2004/102, and just one section will show you what a quagmire we’re getting into:

Scope of application of the Order
3. – (1) This Order shall not apply:

    (a) to products which are supplied in the course of the provision of a service; or
    Could this apply to Second Life?(b) to sales by auction or sales of works of art or antiques.

(2) The Electronic Commerce (EC Directive) Regulations 2002[5] shall apply to this Order notwithstanding Regulation 3(2) of those Regulations.
Or should we be looking at this instead?

What seems to be emerging is that this is very bumpy legal ground which probably needs to be tested in the courts (personally, my least preferred option) or that needs to be tackled through the EU – with the sort of action I’ve outlined in my previous posts: The EU, VAT and Second Life: What can we do? and More news about the EU and VAT.

One comment

  1. Look, indeed it needs to be tested in the courts, because otherwise, you’re introducing into international law a completely untenable precept: that any country can make other countries enforce its laws for it; worse, that it can pre-emptively declare private parties in foreign countries as “unlawful” because they haven’t complied with a domestic law.

    In order for some entity to be declared as “in infringement about the way they are going about this,” that entity has to be rightfully under the jurisdiction of the law. That must be established. And HOW it is established is then at issue. It’s definitely NOT established “because Second Life is on the Internet at large available to any EU person to log on to”. If it is established because LL now has a UK office registered with a VAT number, that’s another matter — but then again, the procedures, practice, and jurisprudence for HOW this enforcement of the 2003 law on e-commerce is made matter — and a lot of Googlers and gogglers on Second Life ranting about this aren’t the expert source to be heeded.

    The EU — or rather, the boosters of this notion in Second Life — are completely overreaching if they think you can unilterally declare a party to be “unlawful” just because “you think” your law “should get to apply, just because”.

    There is no way in hell that a dialogue box in a software program manufactured by Americans residing on servers in the state of California is required to produce the tax calculations of a foreign country. No way in hell.

    That country has to use its own methods of collecting this tax, not forcing others to collect it on its behalf, and setting up its fanboy citizens to scream that companies that don’t do this, making a “comfort zone” for them are “breaking the law”.

    It’s that malicious and spiteful commentary from all the EU ranters on this topic that is really, really infuriating. Because they have absolutely no right to declare a company on the Internet as “in violation” — and we see no evidence at all from any EU authority claiming this — yet.

    P.S., no court has decided this. Just because a law is on the books, does not mean that it is a just law. And just because it is on the books means it has to be enforced in this way, with this interpretation.

    No one likes the way LL springs things like this on the population; we’re all in agreement about that. But given their need to collect VAT, they simply have to add it on. Their billing procedure did indeed provide notification of this. If the receipt isn’t in some sort of proper format, then this can very likely be rectified by LL; the point is, no consumer of LL services is *required* to pay for them; they can cancel payment through their credit card company or bank. And from everything I can gather from the way EU tax experts have answered consumer questions on this issue, I see that if the consumer provides whatever receipt he does have in a good-faith effort, that will likely be sufficient. If more is needed, it can be requested, but to pre-emptively, in advance, maliciously declare LL as “in violation” when it is in fact in the very process of making a good-faith effort to comply with this EU directly is really, really wrong.

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