Virtual tax

Posted on

AccountingWEB had a recent article on how the 'virtual world', such as Second Life, is taxed.

I believe that the answer is simple: virtual worlds are just trading mechanisms, no more and no less. They just happen to involve currencies created by people other than governments and the trading takes place under what may often be artificial names in what looks like an artificial place. What's new? This is the tax haven world of front companies that are deemed to have no residence, after all.

Those names are, however, in the case of virtual worlds identifiable by the provider of that space and the location of that space can also be identified. It is where the server is. Exchange rates can be established, and are. In that case accounts can be attributed to owners and information requests can be made of the owner of that artificial space for that data to be supplied. Put bluntly, the owners are acting as banks by any other name.

Banks are regulated, world wide. So should these owners be so: if not they become the facilitators of money laundering mechanisms at the very least. Once that is established the duty to supply information becomes key. If they choose to operate in locations where information is not exchanged then this comes a simple assault by these facilities (and the governments that allow this to happen) on the financial establishment of the major nations of the world. Action to counter that would have to be taken. This is not impossible.

As for the taxation of the transactions: these transactions take place at the point where control of the transaction is located i.e. where the mouse is clicked. This is a well known concept: it is found in much corporate tax law world wide. In that context if the mouse that controls the transaction is in the UK then that's where the tax is due, that's where the capital gain arises and that's where the estate is located.

How do you prove that? Only by proving the location of the account. So we're back to proper know your client rules required of any financial establishment.

I see no other way forward.