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Participants in virtual worlds such as There and Second Life could shortly be liable to pay tax in real-world jurisdictions, according to Mark Simpson, tax director at Simpson Burgess Nash.

Online worlds are enjoying a surge in popularity and their economy has grown from $64m in September 2006 to nearly $600m today. "Residents" can create businesses to trade products and services such as virtual real estate, vehicles and advertising, while currency can be transferred into real money. In Second Life, which has a population of nine million, the currency, the Linden dollar, exchanges for about L$300 to US$1. The first person to become a real-world millionaire based on virtual-world trading was named earlier this year as Ailin Graef.

"It might seem surreal, but people are making significant sums in virtual worlds," Simpson said. "This is bound to arouse the interest of HMRC and other tax authorities. When they act, there will be no exceptions if you cannot pay what you owe."

According to Simpson, whose Second Life avatar is pictured above, there are a number of key issues to consider. "It will not be as simple as collecting income tax in the...

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