Sweden, South Korea Eye Taxation on Virtual Items

December 15, 2008 -

Following China's lead, Sweden and Korea are working to clarify tax regulations to include in-game trade of virtual items, according to the BBC.

To be clear, we're not referring to the transfer of goods  based on real money sales of in-game gold and other items. That's a cash business and already subject to tax laws.

The theory - at least in Sweden and Korea - seems to be that since some virtual items are readily exchangeable for cold, hard cash, swapping such goods may trigger a taxable event. Professor Edward Castronova of Indiana University, noted for his research into virtual game worlds, is not a fan of the idea:

I think it's an extraordinarily dangerous development. It's as if every time I played soccer in my backyard and scored a goal, I would have to pay the government three euros. It takes away the game's contribution to human happiness.

But Loyola Law School prof Theodore Seto explained the legal rationale for taxation:

You can exchange your Lindens for dollars or Euros on a floating exchange rate any day at any time, without limit... It's easier to tax virtual transactions than it is to tax real-world transactions. The neat thing about it is, all transactions can be recorded. In the real world, we don't have that...

 

If 'gold' is not exchangeable for currency, and it's contrary to the rules, and they make it technically difficult to make the exchange, then I think we should treat the events in World of Warcraft as games. By contrast, Second Life actively markets itself as a venue for making real money.


Comments

Re: Sweden, South Korea Eye Taxation on Virtual Items

Its a taxable business model goverments have the right to lean on.

Also a sin tax on virtual goods would force poeple to either pay up or buy real items from local shops.


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Re: Sweden, South Korea Eye Taxation on Virtual Items

Ok, I am finding his herd to follow.  What are they taxing?

Are they taxing the transfer of real world money into in game money?  If that is the case then they may have a point.  Money is being exchanged for something.  It is a sales tax on a transaction with something that is under their jurisdiction.

Are they trying to tax the buying and selling of in game currency for in game items?  If this is so then they have no more jurisdiction than buying property in Monopoly with the multi-colored fake money we all know and loved to bribe our friends with for gum (ok, so maybe I was the only one that did that).  That is a proposition that I would be totally against at any turn because there is no real world profit to be made.

If real world currency was the focus of the tax then, while kinda crappy, a government does have the ability to control their currency in the form of taxes.  If they are trying to tax in game fake money then I can assure everyone here that I can create some interesting new levels of profanity when I have exausted all previous accepted forms.  Just dont look for them here because I don't think the mods will want to wear out the delete key.

Edit:  From what I got it is on totally in game money.  Can I get a confermation on that because I have been up all night and I think I may be losing my mind here.  Thank you college and your final papers week of sleeplessness.

Re: Sweden, South Korea Eye Taxation on Virtual Items

Edit:  From what I got it is on totally in game money.  Can I get a confermation on that because I have been up all night and I think I may be losing my mind here.  Thank you college and your final papers week of sleeplessness.

From what I can gather from this and the BBC article it's looking at taxation of in-game items bought with in-game money IF the in-game money can be directly traded for real money,

At the moment the only one I'm aware of which would be affected is Second Life's linden dollars which can be traded for dollars and euros through in-game vendors. If I were to trade some of my British Pounds Sterling for US Dollars, I would be taxed on that transaction, but currently if were to trade my Linden Dollars I'd made in Second Life into US Dollars, I wouldn't be taxed for that. So Second Life can be a source of untaxed income and the taxman generally frowns on that sort of thing.

Re: Sweden, South Korea Eye Taxation on Virtual Items

Thank you for clearing that up.  If in game money can be traded for out of game money then it makes sense that the taxman will want their cut.  I am personally against this action but they do have a point since they do control the real world money side of the coin.  It is under their jurisdiction to tax this.

The only time I will have a problem is if they decided to tax in game currency that has no official system in place that allows for the buying and selling of in game currency with out of game currency.

You just saved me hours of working out a whole new system in which to swear with.

Re: Sweden, South Korea Eye Taxation on Virtual Items

I think this will effect to the price and quality as well.

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Re: Sweden, South Korea Eye Taxation on Virtual Items

''I think it's an extraordinarily dangerous development. It's as if every time I played soccer in my backyard and scored a goal, I would have to pay the government three euros. It takes away the game's contribution to human happiness.''

 

 

Just playing devils advocate here.. but that analogy clearly does not work!

Its nothing like playing soccer in your backyard, and paying tax each time you score a goal. If every time you scored a goal, you paid real money to somebody to allow you to score that goal, and tax was taken because of that transfer of real world money between 2 ppl then it wouldbe analogous.

Not that i like the idea lol.

But that soccer example is so flawed its untrue.

 

 

 

Re: Sweden, South Korea Eye Taxation on Virtual Items

I just want to make sure I understand this.  So if I am playing GTA, and I mug someone, they want to take a percentage of the money I mug from the person but in real cash?  Or in WoW, trading an item in the game, for gold that I earned in the game?

Or is this just, if you give someone $20 of real money for 1 million gold of in game money?

If it is the former, then it would be like one person making snow balls and the second making 2 snow forts, then one gives the other half the snow balls in return for the snow fort the other built for them to use in the snowball fight.  Then they would be taxed for that.

It does make you think though.  If the developers of MMOs would charge taxes for transactions in certain cities that are well protected, and not in unprotected cities then it could get interesting...

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Re: Sweden, South Korea Eye Taxation on Virtual Items

-- Deepthorn.

Actually it would be the same as if someone bought snowballs for real cash and then they would be taxed for it...

RTS gamer

Re: Sweden, South Korea Eye Taxation on Virtual Items

This is entirely about online games.  The idea is, if you sold [Uber Axe of Smiting] to another player for 100 gold, that ingame gold has a "theoretical value" of exchange for real money, in the real world.  Therefore, they're saying it was a legitimate transaction with real world implications, and subject to taxation.

This is EXTREMELY dangerous for online games!  First of all, most online games have rules against RMT.  If you play WoW and adhere to the User Agreement, then you should never see any returns in the form of real money based on in-game trading.  And in truth the majority of players stick to those rules.  When most players log off their account for the last time, all that ingame gold and loot is deleted forever.

The next thing to consider is that ingame materialism manifests from nothingness.  At the very core of the economy, gold and items come from killing monsters and doing quests, which are in infinite supply.  Mobs respawn forever.  Thus, there would be an ever increasing ammount of "theoretical value" to tax.  This would be especially bad once servers succumb to inflation, and an [Uber Axe of Smiting] that once traded for 50g, is now trading for 500g.  Such a tax would be robbing the players of ever increasing ammounts, punishing them for playing the game over a long period of time.

Then you have to consider that many games use "money sinks" to slow the march of inflation.  Repairs, mounts, trophy items.  These remove gold from the economy.  Now, imagine that you sold an item for 50g, got taxed in the real world for it, then had to spend that gold to buy a non-tradable mount.  You have lost the "theoretical value," but still had to pay taxes on the original transaction.  What the hell?

I can see the logic in taxing RMT.  But taxing in-game trade is a horrible idea.

Edit:  My points still apply to games like Second Life.  Just look beyond the examples of mob killing and apply the appropriate methods of ingame wealth accumulation for each individual game.

Re: Sweden, South Korea Eye Taxation on Virtual Items

From the way I understand it, your safe with GTA.

It applies to games where people sell in-game stuff for real world cash. Since it has been determined that the virtual item is worth physical cash, then a tax would be placed on that virtual item since it has real world value.  The entire argument for taxation of the stuff exists because of the super nerds that get loads of gold and precious loot (either through play or hacking) and sell them to people for real cash was noticed by the goverment. If those people had not sold the items for real cash, it would never have gotten the government's attention.

I do have to say though, if the items are now taxable, who will be setting the price for such items? What is the tax rate going to be? If I give something to someone is it still taxed, or is it only taxed if I sell something to someone?

Maybe they will figure a ratio (100 gold = 1 dollar) and the will judge taxes on something like that.

 

The whole thing is utterly idiotic and is just another excuse for me to avoid MMOs.

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