The Swedish Tax Agency considers revenue derived from transactions in virtual worlds as taxable (value-added tax and income tax) under Swedish law, so the Virtual Economy Research Network reports, translating and commenting the ruling. I learned about this development reading Virtual Worlds News.
For the Tax Agency it is not necessary for the inworld money to be exchanged into “real money” in order to be taxable. The Agency focuses on transactions between participants in a virtual world, selling a product or a service against payment in an internal currency. Such a transaction should be considered as a sale of electronic services if the internal currency can be converted into a valid legal means of payment.
Virtual Economy Research Network has some questions about the currency issue. When is a currency convertible, does it mean that the operator of the virtual world has to organize the exchange or at least allow/support it, or is the existence of a gray or black market for the internal currency enough?
The Tax Service also has an opinion about what it means being a professional trader. Players can be considered professionals, depending on the scope, permanence, independence and profit intention.
A player who sells electronic services for more than 30 000 Swedish kronor (about 5 039 dollar or 3 190 euro) is considered to engage in a professional activity, according to the Swedish tax rules.
The classical question here is, where is this selling of electronic services to be located? The ruling says the sale is considered to take place in Sweden if the seller is a Swedish trader who is selling electronic services to another Swedish trader or to a private person in Sweden or in another country of the European Union. A sale by a foreign trader to a Swedish trader is also considered to take place in Sweden.
In other countries tax agencies probably also monitor virtual worlds. This is certainly so in the uS, where the authorities have a keen interest in virtual worlds. Until now it seems that the tax authorities are not taking action, maybe because they want to wait for the industry to grow even more.
It is not certain that Sweden will effectively tax transactions in virtual worlds. It is quite possible that the Tax Agency wants to create some instruments to combat the possible use of those worlds for tax evasion purposes.
Virtual Economy Research notes that MindArk, the company running Entropia Universe, is located in Sweden. Entropia Universe boasts a Real Cash Economy.
Virtual Worlds News reports there is a translation of the ruling on the Entropia Forum and also has some comments by the CEO of MindArk.
I am not sure yet what my stance is on this. There is an undeniable logic considering the selling of electronic services inworld as taxable, if it is clear that the inworld currency can be converted easily into “real” currency. Of course there are players out there developing professional activities, either inworld or on the grey and black markets, and of course there is the possibility of tax evasion.
On the other hand, virtual worlds and economies are very young. It seems more prudent to monitor how those economies develop instead of imposing administrative and financial burdens in this very early stage. I guess it is not a coincidence that it is a European country taking the lead in taxing virtual world activities.
Roland Legrand
