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The legal status of virtual goods - Lawyers Weekly Canada

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[SIZE=-2]Lawyers Weekly Canada[/SIZE]


The legal status of virtual goods
[SIZE=-1]Lawyers Weekly Canada[/SIZE]
[SIZE=-1]The transactions can be very real: a space station in an online universe called Entropia sold for more than $330,000 in 2009. The lack of legal direction raises serious questions. For example, are in-game transfers taxable? The Canada Revenue Agency ...[/SIZE]

[SIZE=-1]http://news.google.com/news/more?ncl=dZ0NfgF0K1NSxnM&ned=us[/SIZE]


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So pretty much raises questions we are aware of but no answers as yet. Wonder if and when legal authorities devise laws they will be favourable to us as players...

Also the article makes no mention of the international aspect. Wonder if an international legal authority exists. If not wonder if it it can be instated perhaps just for internet/gaming issues.
 
A typical 'feeler' to raise awareness to governments that there could potential be tax revenues to claim against it's citizens, and it is in their interests to hire those said lawyers to "find out" and produces laws to benefit those governments. Fees, fees, fees.

Interesting though even if they do, they will get it wrong as most will have had little interaction and understanding due to lack of experience in gaming themselves.

Most likely and in most cases players costs will out way their benefits (i.e. profit), and even if there is profit, it is diverted to strengthening that players position in the game by buying either more assets or investing in their avatars. If this wasn't the case most games would not survive.

Where I see a problem is those that are lucky enough to make a living from it, although if the tax issue raised it head, players would just use gained funds to invest further so zero tax liability would be payable. i.e buy land area for example.

Ownership of goods or items will be a hard one to prove and justify since at the flick of a switch those virtual assets could no longer exist, so any taxable gain would only be on sale and withdrawal. Still it's a avenue that the legal profession will be licking their lips to access and earn from.

Call my cynical...lol

Rick
 
All sorts of questions here .

Any withdrawl is taxable im guessing. However is it taxable if what you withdraw is less than you have deposited.
ie running EU as a business.
Also can depositing be ofset against tax. Does an item in EU constitute a capital expenditure.

:scratch2:
 
in b4 new taxes applied to withdrawing funds from a virtual ''universe''.

There can be no peace unless everything is taxed, right?
 
If you are making a living from it then yes you would have to pay taxes. Thou the authorities may take a whole to figure it out lol. Star has said before he pays taxes on his entropia income. But obviously they can only tax money you withdraw.

But if your are only occasionally making a withdraw of relatively small amounts you wouldn't get taxed. Like if you have a win at a casino site or betting sight, money made from hobbies is not taxed. Only if its your livelyhood. Which there isn't many people in eu lol.
 
crazy said:
If you are making a living from it then yes you would have to pay taxes. Thou the authorities may take a whole to figure it out lol. Star has said before he pays taxes on his entropia income. But obviously they can only tax money you withdraw.

But if your are only occasionally making a withdraw of relatively small amounts you wouldn't get taxed. Like if you have a win at a casino site or betting sight, money made from hobbies is not taxed. Only if its your livelyhood. Which there isn't many people in eu lol.
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Keep in mind that for one person 500$ is monthly salary earned so if he withdraws 5000peds he should be taxed with rules you described becasue its his livelyhood. While for others who earn +10k$ monthly the 500$ is very small amount.

In theory - anything that you "earn" (so withdrawals minus deposits) should be taxed as long it does not exceed yearly maxed non-taxed total earnings (this differs for each country i guess).

In practice - i really doubt someone would track this down as long its not +50k dollars yearly withdrawals or more.

Falagor
:bandit:
 
Blacksnow Interactive made money hiring Mexican labourers to play online computer games.....
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Ha! Next time Manique sends me a stupid -REP message I'm going to call his boss and have him fired for spending too much time on forums and not enough time progressing his avatar!

On a more serious note.... it's only a matter of time before the gov'ts find a way to either BLOCK these games in their respective countries, or force us to report all funds transfers.

Menace
 
this raises the question, can a withdraw be made from MA, in person? like at their office? bypassing the tattle tale nature of the banks when dealing with international transfers?
 
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Menace said:
(...)
On a more serious note.... it's only a matter of time before the gov'ts find a way to either BLOCK these games in their respective countries, or force us to report all funds transfers.

Menace
Click to expand...

This is something i am afraid off but on the other hand i really hope they will not succed. People are VERY rebellious about internet world restrictions. Remember ACTA thing? I know sometimes they succed actually (i.e. Megaupload) but still i think people for some reason are willing to fight more for their independece in virtality than in reality.

Falagor
:bandit:
 
Interesting article, perhaps time to see if a legal precedent can be set where a game developer knowingly misrepresents their intention and state of development of game features which directly affect the value of in game investments, and thus causes traceable and demonstrable and possibly irreparable financial harm as well as substantial mental anguish to players and in game investors. May not win, but sounds like time may come soon for some lawyers to have a field day with MA's handling of taming, out of court settlement may be preferable to a PR disaster...hope you guys are reading carefully.

Good article overall, will be interesting to see how this area develops and possibly see a small amount of justice transpire.
 
crazy said:
Star has said before he pays taxes on his entropia income. But obviously they can only tax money you withdraw.
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That is in no way obvious. While I would think it's probably true, it's arguable that gains on your Ped card could be taxed. (Even if the IRS (or your country's taxing agency) doesn't know about it, it would then be your responsibility to report)


crazy said:
But if your are only occasionally making a withdraw of relatively small amounts you wouldn't get taxed. Like if you have a win at a casino site or betting sight, money made from hobbies is not taxed. Only if its your livelyhood. Which there isn't many people in eu lol.
Click to expand...
False. 100% wrong. Profits from gambling , or hobbies, even theft, are totally taxable - at least in the U.S.A.
 
Colbey Kal said:
That is in no way obvious. While I would think it's probably true, it's arguable that gains on your Ped card could be taxed. (Even if the IRS (or your country's taxing agency) doesn't know about it, it would then be your responsibility to report)



False. 100% wrong. Profits from gambling , or hobbies, even theft, are totally taxable - at least in the U.S.A.
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Wasn't there a case where someone stole some goods worth millions, then sold it for a nice profit? There was no proof of the theft, or rather it couldn't be proved due to an illegal search. He then was prosecuted for not paying taxes on his profit. I'll have to look it up again, but if you know your not going to get caught, pay your taxes!! :laugh:

Edit:
Utah Woman Sentenced on Tax Charges
On September 5, 2012, in Salt Lake City, Utah, Sara Savoy was sentenced to 36 months in prison, three years of supervised release, and ordered to pay $1,306,963 in restitution. Savoy pleaded guilty to one count of filing a false return. According to court documents, from 2006 through 2009, Savoy embezzled $1,776,117 from her employer, Reaction Engineering International. She failed to claim the embezzled funds as income on her individual income tax returns.
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from here: http://www.irs.gov/uac/Examples-of-General-Fraud-Investigations-Fiscal-Year-2012

I know there is more then this but is quite funny.
 
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Nor Alien said:
Wasn't there a case where someone stole some goods worth millions, then sold it for a nice profit? There was no proof of the theft, or rather it couldn't be proved due to an illegal search. He then was prosecuted for not paying taxes on his profit.
Click to expand...

Guy's name was Al Capone... ;)
 
This has been a topic for some time. Over a decade. Governments have not figured out how to tax virtual goods because they cant come up with any sort of universal rule for them.

What if you are accruing goods ingame, but dont ever cash them out into the real world?
What if you are actually paying into the virtual world, is that then tax deductible as a cost of doing business?
Is your avatar then a legal entity? Does it exist as an extension of yourself, as a business, or somewhere in-between?

These are important questions that need to be answered before governments can tax virtual worlds. They wont be answered anytime soon because the people making the laws dont have a clue what theyre talking about here.
 
Really? Some people need to stop playing eu fora while and get out into the real world, governments taxing Ingame money???? Are you fucking real?

PEDs are not a real currency.


You buy PEDs from MA when you deposit.

You sell the PEDs back to MA when you withdraw.

Some of you have wild imaginations really, the business model of EU is not a new thing. It may look glossy, futeristic and unique. It's just like any casino. Bingo or gambling site. You give them money. Spend it in there system. Have some fun, and maybe win a little money sometimes.

If your really good at it then you will be able to quit your job and become a professional at it.

Bit as for getting taxed on PEDs ingame wtf are you all smoking?
 
From a taxation point of view regarding Entropia Universe the current understanding I have is that expenses and income are handled at the currency conversion step - i.e. going from USD->PED and PED->USD.

This is a fairly clean solution as it allows the transactions to be tracked using existing means, it doesn't require the authorities to try and dive in to EU's mechanics, and if a person tries to hide income in some way then there are existing legal mechanisms to deal with it.

It doesn't affect the majority of Entropia participants though as they are not running a business operation in Entropia.

As for the other topics the article raised they have yet to be well tested anywhere so the jury is still out, so to speak.

- Deathifier
 
crazy said:
Really? Some people need to stop playing eu fora while and get out into the real world, governments taxing Ingame money???? Are you fucking real?

PEDs are not a real currency.


You buy PEDs from MA when you deposit.

You sell the PEDs back to MA when you withdraw.

Some of you have wild imaginations really, the business model of EU is not a new thing. It may look glossy, futeristic and unique. It's just like any casino. Bingo or gambling site. You give them money. Spend it in there system. Have some fun, and maybe win a little money sometimes.

If your really good at it then you will be able to quit your job and become a professional at it.

Bit as for getting taxed on PEDs ingame wtf are you all smoking?
Click to expand...

Well it is not exactly like a casino, if you ever went to one and cashed out with large amounts of winnings you get taxed and fill out an tax document so they can supply the information to the revenue service. Cashing out small amounts you do not have to pay taxes or fill out that tax document. I have come out with 5k+ from a casino a few times and had to go through that whole process, local small casino, Las Vegas casino and a small casino in Europe and all had the same process with taxing the winnings and filling out paperwork. I had to claim all those winnings even the stuff I won in Europe on my tax returns as income.

I have not had the fortunate benefit to withdraw here but because of the laws are not defined fully everywhere and only a few places have any regulations at all, specifically in Asia. Currently in most areas there is no laws about having to report you earnings. Even if you did it would have to be larger amounts to make it worth all the trouble to have it reported just like at a casino or other gambling winnings. One of the big things about bitcoins you can try to buy them cheap and sell them high without being capital gains taxes, but this whole thing with bitcoins is pushing for regulation and if it goes to far it could effect games like EU and other areas of the internet eCommerce. BTW I do not do bitcoins :p whole thing seems wierd to me.
 
Colbey Kal said:
That is in no way obvious. While I would think it's probably true, it's arguable that gains on your Ped card could be taxed. (Even if the IRS (or your country's taxing agency) doesn't know about it, it would then be your responsibility to report)



False. 100% wrong. Profits from gambling , or hobbies, even theft, are totally taxable - at least in the U.S.A.
Click to expand...

How can they tax your ped card? I could have a uber HOF tomorrow. And have all the PEDs spent with in a week. PEDs are not real. Try to spends PEDs out of EU and see how far you get lol.

And I said small amounts.

Which I have done on more than one occasion from poker sites, betting sites and casinos IRL and didn't pay any tax. Values from a few hundred dollars to a couple of thousand dollars, so how am I wrong?
 
crazy said:
How can they tax your ped card? I could have a uber HOF tomorrow. And have all the PEDs spent with in a week. PEDs are not real. Try to spends PEDs out of EU and see how far you get lol.
Click to expand...

I'd say that PEDs are at least as real as someone giving you a back massage (or any other service). Receiving a service, or a right to receive a service later, as payment is taxable as income.

Really the question of whether anything in-game (Before withdrawal) is taxable as income probably depends on if you are a cash basis or accrual basis tax payer. 99.999% of individuals (you, me, and everyone else reading the forum) are cash basis tax payers. There are a few areas where transaction are treated similar to accrual basis even for cash basis payers though. But like I said earlier - You probably don't need to pay taxes until you cash out.

crazy said:
And I said small amounts.

Which I have done on more than one occasion from poker sites, betting sites and casinos IRL and didn't pay any tax. Values from a few hundred dollars to a couple of thousand dollars, so how am I wrong?
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Wow! You got away with breaking the law! :yay: Gratz !!1! :wtg:

Seriously; it's not worth the effort to enforce for small amounts. Almost every day I drive 5 m/h over the speed limit. It doesn't mean that I'm not 'speediing' - it's just not worth the effort of enforcing insignificant violations.
 
In Canada you don't get taxed on any lottery winnings. You only pay tax on money you make. What a mess it would be if the Canadian Gov't decided to tax traders and those providing a service..... but considered a Hunter's HoF to be "lottery winnings" and chose not to tax it!

Menace
 
Menace said:
In Canada you don't get taxed on any lottery winnings. You only pay tax on money you make. What a mess it would be if the Canadian Gov't decided to tax traders and those providing a service..... but considered a Hunter's HoF to be "lottery winnings" and chose not to tax it!

Menace
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I think it would be 10 times simpler - you withdraw money ergo you have gained income and it is taxable. You might argue that if you have deposited more than withdrawn, you haven't really gained income, but don't know...
 
btw If I am windrawing 10k USD every month I dont mind to pay taxes :cool:
I will even tip the tax authorities few bucks more to get some coffee :beerchug:
 
I don't know anything about tax laws of other countries, but in the US, all income of any kind is taxable unless it is specifically exempt from taxation. Realistically, this is only an issue with the IRS when dealing with larger sums of money, but the fact that you don't claim income and are never caught doesn't change the law.

There are two issues here: 1) is this a business or a hobby?; and 2) when do you recognize virtual income?

Business vs hobby income matters because of differences in deductibility of related expenses.

When to recognize virtual income matters because it determines when taxes are due. If you ran your Entropia business like a normal business, you'd need to track individual sales and purchases. However, given that MA's terms of use state that assets are not real, I think the most reasonable solution is to only recognize gains or losses when currency is converted from PED and withdrawn. Although I could see an argument to the contrary being made, you would not be doing anything criminal if you could make a reasonable argument why you recognized revenues at conversion.
 
Menace said:
In Canada you don't get taxed on any lottery winnings. You only pay tax on money you make. What a mess it would be if the Canadian Gov't decided to tax traders and those providing a service..... but considered a Hunter's HoF to be "lottery winnings" and chose not to tax it!

Menace
Click to expand...

Similarly in the UK, however...... if you want to give your relatives and/or friends some of your lottery millions, the payment must come from the Lottery people, not you. Otherwise they are liable to pay tax on it, even though it is a gift.

In the same way, the maximum (cash) amount you can give to anyone is £10,000 - after that, it again becomes taxable.

Basically, the simple rule is if you receive income, however it is done (leaving aside lottery winnings, betting wins where the tax is paid at source, personal sales and the like), you must declare it and pay tax on it (as you do on savings interest for example) so theoretically, unless/until money withdrawn from an RCE game is shown to be exempt from taxation, money withdrawn should, theoretically, be declared. Whether or not any tax is then collected remains to be seen.
 
I think maybe they have as well, although this is the first time I have seen a Judge apply this to virtual goods as in objects from a game/platform etc.. The ruling was quite interesting apart from the fact the persons charged did jail time, communtiy service and probabtion. I havent had time to study the ruling yet fully, but potentially it could have implications for those that decide that copy botting is ok etc. and maybe for LL in so far as their seemingly nonchalant attitude towards those that do this. IMHO LL need to step up to the plate and treat this sort of thing seriously instead of playing like an Ostrich with these incidents. I think though LL tend to think they are above the law in some matters and I look forward to them opening their office here in Holland as they plan and I will be asking my company lawyers here in Holland if this has any significance for Dutch players ripped off in SL.
 
Well, if the law ever does catch up, maybe it'll speed up the lengthy amount of time that it takes MA to get withdrawals back to your bank, since they wouldn't want to make the exchange take longer than tax years or quarters or whatever, which could be a very good thing. ;)
 
mastermesh said:
Well, if the law ever does catch up, maybe it'll speed up the lengthy amount of time that it takes MA to get withdrawals back to your bank, since they wouldn't want to make the exchange take longer than tax years or quarters or whatever, which could be a very good thing. ;)
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Why? It doesnt matter to MA when you make your withdrawal request anymore than it matters to the IRS when a contractor does the work. It matters when you get paid and only when you get paid.

If the US government, for example, were to tax money made in EU we would all (those of us in the US) have to fill out 1099's and pay our taxes in advance, anticipating a future return.

This would effectively kill any fun in EU, as we would have to constantly push to make our goal, otherwise have our money tied up until we filed for our refund on the 1st of the year. Bad financial management. Anyone with half a brain would either back out of the system or find ways to not report the income.
 
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