V5 UGC Marketplace — Legal & Compliance Layer

plan-id: v5-ugc-marketplace-compliance.v1

Status: Draft for review — fills audit gap V1_V7_PLAN_SET_AUDIT_2026-06-12 §6.2 ("no DMCA agent/process or minors-as-sellers policy for a 70%-share paid-mod marketplace"). Every tax and legal position below is a planning position requiring outside-counsel sign-off before the marketplace takes its first real dollar; positions are labeled planning assumptions where adopted without counsel.

Owners: Commerce Counsel (overall), Trust & Safety Lead (DMCA operations), Finance Operations (tax reporting + withholding), Marketplace Engineering Lead (KYC/payout gates in the workshop service), DPO (data handling in KYC).

Grounding: V5/V5_features.md §"Workshop & Mods" (paid-mod marketplace, 70% creator share, KYC/tax-interview/refund-window/payout/reserve gates; three-layer moderation with DSA-compliant appeals; copyright-safe rules + known-infringing hash list) and V5/ue/Plugins/V5Mode_Editor_Workshop/Content/Data/year1_modder_marketplace_manifest.json (creator 7000 bp / platform fee 2000 bp / creator fund 500 bp / chargeback reserve 300 bp / tax-withholding reserve 200 bp; $25.00 minimum payout; 30-day payout cadence; 48-hour refund window; creatorKycRequired, taxInterviewRequired already enforced as listing gates).

1. Marketplace legal posture#

• The platform operates the paid-mod marketplace as a marketplace facilitator / merchant of record for buyers (we charge the buyer, we grant the entitlement, we handle refunds), and licenses creator content under a non-exclusive distribution license in the Creator Agreement. Creator payments are structured as content-license royalties (planning assumption adopted 2026-06-12; the alternative TPSO characterization is analyzed in §4.1 — counsel must confirm the characterization because the 1099 regime depends on it).
• Workshop content is data-only by spec; the marketplace sells only moderation-approved, KYC-verified, tax-interviewed listings — these are already hard gates in the manifest and the workshop service contract.

2. DMCA — Agent, Takedown, Counter-Notice#

2.1 Designated agent#

• Register a DMCA designated agent with the US Copyright Office (online directory, $6 fee, renewable every 3 years) before the marketplace or public workshop opens — registration is a precondition to §512 safe harbor. Owner: Commerce Counsel; target: with the closed-beta workshop opening (2026-11), not launch.
• Public intake: dmca@ mailbox + a structured web form on the creator hub; agent name/address mirrored in the ToS and on the workshop "report" surface.
• Adopt and publish a repeat-infringer policy: 3 upheld infringement takedowns in 12 months → marketplace selling ban; 5 → workshop publishing ban (account-level, integrates with the existing creator-standing throttle). Required for safe harbor (§512(i)).

2.2 Takedown SLAs#

• Paid items: on takedown, sales stop immediately; revenue already booked for the disputed item moves to held status (paid from the chargeback/tax reserves mechanics, §6) pending resolution; buyers keep entitlements unless a court order requires revocation, in which case refunds issue at platform expense.
• The ML pre-screen and known-infringing hash list (features§"Workshop & Mods") are proactive filtering, not a substitute for notice-and- takedown; both pipelines log to the same moderation case system.
• EU: the DSA notice-and-action path the spec already mandates handles EU notices; counter-notice and out-of-court dispute settlement per DSA Art. 20–21 ride the existing appeal flow (7-day SLA).

2.3 Counter-notice and abuse#

• Counter-notices via the same form; §512(f) misrepresentation warnings shown on both notice and counter-notice forms.
• Takedown-abuse detection: a notifier whose notices are >50% rejected/ counter-noticed-unchallenged over 10+ notices is flagged for manual review and may be deprioritized to manual-only processing (DSA Art. 23 "frequently submitted manifestly unfounded notices" analog).

3. Minors as Sellers#

Planning assumptions adopted 2026-06-12, COPPA/GDPR-consistent and chosen for launch simplicity over maximal inclusion:

• Age floor for selling: 18. Rationale: contracts with minors are voidable in most jurisdictions; KYC vendors cannot reliably verify minors; tax interviews (W-9/W-8) require capacity to sign; guardian-custodied earnings create escheat/UTMA complexity not worth carrying at launch.
• Guardian-mediated seller accounts (guardian completes KYC, holds the payout account, co-signs the Creator Agreement) are deferred to a post-launch review (target: Season 2 scoping) — explicitly a deferral of new capability, not of compliance for shipped capability.
• Enforcement point: the existing creatorKycVerified gate — KYC (§5) fails closed for under-18, which automatically blocks listing (the manifest already requires KYC before any paid listing).
• If KYC reveals an existing paid seller is under 18: listings unpublish, buyers keep entitlements, accrued earnings are held until the creator turns 18 or a guardian claim process completes (not forfeited — earned funds belong to the creator).

4. Tax-Jurisdiction Matrix#

All rows are planning positions adopted 2026-06-12, pending counsel and a tax engine integration (Finance Operations owns vendor selection by 2026-09).

4.1 US information reporting#

• Characterization (drives everything): creator payments as royalties → Form 1099-MISC box 2, threshold $10/year, for US persons (W-9 on file from the tax interview). Practical effect: nearly every US creator with any sales gets a 1099-MISC.
• Alternative characterization: if counsel concludes the platform is a third-party settlement organization, the regime is 1099-K, threshold $20,000 AND 200 transactions per year (the 2025 One Big Beautiful Bill Act reinstated the $20k/200 threshold, reversing the ARPA $600 phase-down) — materially fewer forms. The tax interview collects enough (W-9 TIN, address) to support either regime; engineering builds to the stricter 1099-MISC/$10 assumption so a late characterization change is a reporting-config change, not a data-collection change.
• Backup withholding: missing/invalid TIN → 24% backup withholding, funded operationally from the 200 bp tax-withholding reserve and trued up against the creator's payouts.
• State: file where required by state 1099 thresholds (engine-driven).

4.2 Non-US creators — US withholding#

• Tax interview collects W-8BEN / W-8BEN-E; default 30% withholding on US-source royalty income, reduced by treaty (typical royalty rates: UK, DE, FR, JP, CA → 0%; IN → 15%; no-treaty → 30%).
• Sourcing position (planning assumption adopted 2026-06-12): royalties are sourced where the content is used → only the US-buyer share of a non-US creator's revenue is US-source and withholdable. Implementation: per-listing revenue is already attributable to buyer storefront country; withholding applies to the US-buyer slice. Counsel must confirm; the conservative fallback (withhold on 100%) over-withholds treaty-eligible creators and would be a creator-relations problem — flagged as a decision needed by 2026-10.
• Annual Form 1042-S to each non-US payee; Form 1042 filing.

4.3 EU — DAC7 platform reporting#

• The marketplace is a reporting platform operator under DAC7 for EU-resident sellers. Digital-content licensing is treated as in-scope (personal-services/goods classification is genuinely ambiguous for digital content — planning assumption adopted 2026-06-12: report all EU sellers, since the goods de-minimis carve-out (<30 sales and ≤€2,000) may not apply to our supply type; over-reporting is the safe side).
• Collect at tax interview for EU creators: legal name, primary address, TIN(s) + member state, VAT ID if any, date of birth (also feeds §3), and financial-account identifier used for payouts.
• Report annually by 31 January for the prior year to the elected member state of registration (planning assumption: register in Ireland, where the EU establishment for the storefront is expected — Commerce Counsel to confirm with the corporate-structure decision).
• Seller non-cooperation: DAC7 requires payout freeze/account closure after two reminders + 60 days without required data — wire this into the KYC gate states.

4.4 VAT / GST — deemed supplier treatment#

• Paid mods are electronically supplied services (ESS) for VAT purposes.
• EU: B2C sales via the marketplace make the platform the deemed supplier (Art. 9a of the VAT Implementing Regulation — the platform sets terms and processes payment, so the presumption is not rebuttable in practice). Platform charges the buyer's member-state VAT rate and remits via OSS (Union scheme through the EU establishment). Creator→platform leg is out of scope of buyer VAT; EU-business creators self-handle their own VAT on the royalty stream per their local rules (guidance page, not tax advice).
• UK: same marketplace-liability outcome; UK VAT registration + returns.
• US: marketplace-facilitator laws now exist in every sales-tax state — platform collects/remits where digital goods are taxable (engine-driven taxability matrix; digital-goods taxability varies by state).
• Japan: the 2025 platform-taxation regime makes large digital platforms liable for consumption tax on foreign sellers' B2C digital supplies — treat the platform as liable (planning assumption; threshold ¥5B in-scope supplies — verify applicability with counsel).
• Other launch markets: Canada (GST/HST digital regime), Australia/NZ (GST on remote services), South Korea, Brazil — engine-driven; the price the buyer sees is tax-inclusive where local practice requires (EU/UK/AU/NZ), tax-added where US-style.
• VAT/GST is charged on top of / inside the buyer price and never reduces the creator's 70% revenue-share base, which is computed on the tax- exclusive sale amount (matches the manifest's basis-point split summing to 10000 over the net price).

5. KYC Tiering by Earnings#

KYC vendor performs document + liveness verification, sanctions/PEP screening (OFAC, EU consolidated list), and re-screening on list updates. The manifest's creatorKycRequired gate maps to Tier 1+.

• Failure/expiry at any tier → listings stay live for 30 days with payouts held, then unpublish (fail-closed); sanctions hit → immediate freeze + mandatory review, no auto-unfreeze.
• KYC data handling: stored by the vendor, not in V5 services; the workshop service stores only tier, status, and expiry (DPO-approved data-minimization posture; DSAR flows via the existing compliance-dsar service).

6. Refunds, Chargebacks, and the Creator Reserve#

The manifest already specs: 48-hour refund window, 300 bp chargeback reserve, 200 bp tax-withholding reserve, $25 minimum payout, 30-day payout cadence. This section defines how they interact:

• Refund (within 48 h): full buyer refund; the revenue-share booking for that sale reverses entirely (creator 70%, platform 20%, fund 5% all reverse). No reserve impact — refunds inside the window are a booking reversal, not a loss event. Anti-abuse: a buyer refunding >5 marketplace items in 30 days or refunding >50% of purchases loses self-serve refunds (manual review path remains, and statutory refund rights — e.g., EU 14-day withdrawal where it applies pre-download/consent — are never blocked).
• Refund after 48 h (support-granted exception, e.g., item broken by a game patch): platform-funded; does not claw back the creator share when the cause is a platform-side change; claws back when the cause is a creator update that broke the item (creator notified with the linter evidence).
• Chargeback: the full sale reverses + the processor fee. Recovery order: (1) the creator's 300 bp rolling chargeback reserve, (2) offset against future payouts, (3) platform absorbs if the creator account is closed with insufficient reserve. The reserve is rolling 90-day: each payout period's 300 bp holds for 90 days, then releases into the next payout.
• Chargeback-rate gate: a listing or creator exceeding 1.0% chargeback rate over 90 days (min 100 sales) enters review — possible causes are fraud, misleading listing, or stolen-card farming (also a §7 RMT signal in the economy doc); review can raise that creator's reserve to 1000 bp or suspend selling.
• Tax-withholding reserve (200 bp) funds backup/NRA withholding remittance timing gaps (§4.1, §4.2); trued up quarterly per creator; excess releases with the regular payout.
• Disputed-content holds (DMCA §2.2) hold only the disputed listing's unpaid earnings, not the creator's whole balance, unless the repeat- infringer policy triggers.

7. Pre-launch compliance gates#

Each is a launch-readiness-style gate for the marketplace surface (owner in parentheses):

1. DMCA agent registered + repeat-infringer policy published (Commerce Counsel) — before closed-beta workshop, 2026-11.
2. Creator Agreement + tax interview flows reviewed by counsel; royalty-vs- TPSO characterization confirmed (Commerce Counsel + Finance) — 2026-10.
3. Tax engine integrated and certified against the §4.4 matrix for all launch storefronts (Finance Operations) — 2027-01.
4. KYC vendor live with tiering + sanctions re-screen webhooks (Marketplace Engineering Lead) — 2026-11.
5. DAC7 registration completed; first reporting dry-run on beta data (Finance Operations) — 2027-02.
6. Under-18 fail-closed path tested end-to-end, including the existing-seller discovery flow (Trust & Safety Lead) — 2027-01.