UK Looking Into Taxation: The Saga Continues

Taxation of virtual worlds, including Second Life, are nothing new - Reuters reported on the US tax probe quite some time ago. The Australians have already said virtual income is taxable (guess where the WSE is based). It should be no surprise that the UK is also looking into it - from Tax office tackles growing trade in virtual items for real money:

HM Revenue and Customs has begun investigating people who are making real-life profits on the life-simulation computer game, Second Life.

According to Blick Rothenberg, the London-based chartered accountant, the Revenue has become concerned at the growing number of people who are using the game to trade virtual items for real money, generating profits without paying any tax.

"There is no doubt that HMRC are looking at this and trying to decide how to tackle what could be a considerable loss to the Exchequer," said Matt Coward, a senior tax partner at Blick Rothenberg.

"The phenomenon of Second Life raises a significant number of tax questions and poses a conundrum for tax authorities worldwide. Will HMRC try to tax profits within the virtual world? Or try to seize the tax that is owed when the profits are taken out and converted into real cash?"...

Well, why should anyone be surprised? While some bandy about phrases such as '[w:fictional currency]' - a technically inaccurate phrase - the Linden dollar is more of a [w:fiat currency]. That Linden Lab treats the money like game tokens doesn't mean that they are game tokens - that would mean that they would be like gambling chips. When people cash out money, they like to talk about how they sold virtual items, but if someone got value out of it - and paid a cost - is the item itself so virtual? More and more the uses of words like 'fictional' and 'virtual' are phrases of evasion. If you log in, even as a 'game', your avatar is as real as you make it - and simply by using the avatar, you make it real. When you spend Linden dollars, you make Linden dollars real. And when you cash money out of Second Life, guess what? That money is quite real.

And it isn't like the concept of tax is new to Second Life either. What is land tier but a tax on land owners by Linden Lab? If we're flexible in our thinking, we can also see that this is a monthly payment for a service - a 3 d hosting service. But it is presented as tier - a layer, or a level - a stratum. A stratum of what? Service? Sure. But it also means the more virtual land one owns, the more tier one pays - and that is very much a land tax. In return, there is supposed to be a service for the land tax. That service leaves something to be desired- but what else is there?

Taxation. It is impossible to avoid, and the easiest solution for governments is to tax the money that is cashed out of Second Life by the citizens which they allegedly represent. I won't be surprised in future if 'fictional currency' starts getting more of a 'fictional tax'. If people need laws to protect them from themselves (what else are laws?), then someone has to provide them consistently. And that gets into issues of [w:internet governance] which, of course, is very amusing because internet governance itself is something which legal scholars on virtual worlds pointedly ignore.

What's in your wallet? I'd suggest keeping some of your earnings to cover your local taxes - just in case.