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.