Cabinet Beau de Loménie
The Tribunal Administratif de Montreuil (Administrative Court of Montreuil) in a decision dated 9 February 2012, recently published, ruled for the first time on the fiscal nature of domain names, in a case involving the famous auction site eBay.
The company eBay France is the holder of the <ebay.fr> domain name assigned by AFNIC. This domain name is made available to the parent company eBay International AG, without eBay France receiving royalties in return. eBay International AG only reimbursed the fees paid for registering the domain name.
During an inspection by the French Tax Authorities, the domain name was reinstated in the balance sheet of the French company as part of its intangible assets and the Court confirms this interpretation.
It considers that the French company holds an exclusive right to use the Internet domain name in question, which allows it to receive a regular income in operating the domain name itself or by making it available to a third party. It also notes that under the AFNIC Naming Charter, the allocated “right to use” is automatically and indefinitely renewable and thus has sufficient permanence.
The dispute was really about the availability of the <ebay.fr> domain name to eBay International AG without payment of financial consideration by the latter, except for the reimbursement of the registration fees of the domain name. In the absence of evidence that "the facts or accounting entries were justified by the normal management of its [the company’s] own interests", the Tax Authorities therefore interpret this as a transfer of profits and reinstate into the taxable income of eBay France the amount of royalties it should have received from this arrangement.
This unjustified transfer of profits also generates a withholding tax, such tax being paid on the income distributed by eBay France to eBay International AG, and which is estimated at 2% of the turnover of the ebay.fr website.
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