The slow demise of virtual tax havens

Is taxation of commerce in the virtual space inevitable? We've been hearing more and more about this coming out of China, South Korea, and Sweden, but a recent piece on BBC News -- "Slapping a tax on playtime" -- hits a bit closer to home for many of us. Flora Graham, a technology reporter for BBC News, spoke with Professor Edward Castronova of Indiana University, well-known for his research and commentary on virtual economies over the years, and game researcher Dr. Richard Bartle about the impact of taxation on games and virtual worlds.

Castronova points out the idea of taxation of virtual goods exchanged for virtual money, saying, "... 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 from the game's contribution to human happiness."

Bartle's views expressed in the BBC piece are similar to Castronova's sentiments. "If you were taxed every time you bought a property in Monopoly, you'd be annoyed. The same goes for people in World of Warcraft," Bartle says.

BBC also caught up with Professor Theodore Seto, who said "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." He goes on to make a distinction between games where currency is ancillary to game play, and virtual worlds, saying, "By contrast, Second Life actively markets itself as a venue for making real money."

So what is the solution to keeping the tax man out of MMOs and virtual worlds? Castronova feels a (radical) change in how games are designed would reduce the incentive to acquire in-game wealth, or pay for it with real world money. Bartle, however, expresses the view that players who are caught buying their way ahead in the game with real world money could be hit with real world fines. See the full piece, "Slapping a tax on playtime" at BBC News for more on the state of taxation in the virtual realm.