The Tribunal administrative de Montreuil—in a recently released decision—concluded that the French taxpayer must be regarded as having made an indirect transfer of profits abroad within the meaning of Article 57 of the French tax law because it held the exclusive right to use the internet domain name and made this right available to its Swiss parent company without receiving any compensation beyond the reimbursement of registration and renewal fees for the domain name. 9 February 2012, no. 1000897, eBay France TA Montreuil, 1st Chamber
The taxpayer (eBay France) is a French company incorporated in 2000 and 99%-owned by a Swiss company (eBay International AG), itself a subsidiary of the eBay group.
The French entity provides marketing and sales support services for the benefit of the Swiss entity; it is also the registered owner of the internet domain name “ebay.fr” since its acquisition and merger, in 2001, of the previous owner of that domain name, a French third party.
After that acquisition and merger, eBay France became the registered owner of the internet domain name, which eBay International AG has been using to conduct its business in France, and for which it has used the marketing and sales support services of eBay France.
On tax audit of fiscal years 2003 to 2005, the French tax administration:
- Considered that the right to use the internet domain name “ebay.fr” was an intangible asset that eBay France had failed to recognize upon registration under its name
- Made a transfer pricing adjustment equal to 2% of the turnover realized by eBay International AG through “ebay.fr” to reflect what the French tax administration considered to be arm’s length compensation for the registered owner of the domain name
The tax authorities’ assessment was challenged in court by eBay France.
In its February 2012 judgment—recently made public—the Administrative Court of Montreuil, first chamber, established that the exclusive right to use an internet domain name is to be regarded as an asset because:
- It allows the domain name’s owner to generate regular income from it (either through direct use or by granting such right to another company).
- There are no apparent time limits to its use (because annual renewals to the domain name registration can be easily secured).
As a consequence, according to the court’s decision, eBay France must be regarded as having made an indirect transfer of profits abroad within the meaning of Article 57 of the French tax law because it holds the exclusive right to use the “ebay.fr” domain name and makes this right available to its Swiss parent company without receiving any compensation beyond the reimbursement of registration and renewal fees for the domain name.
According to tax professionals with Fidal*, it appears the eBay case is the first French case dealing with the transfer pricing aspects of internet domain name ownership and use.
Although the full facts of the case are not presented in the Administrative Court of Montreuil’s decision, it would appear to tax professionals to be far-fetched to consider that compensation for the right to use a domain name would be 2% of the turnover generated through that domain name?especially when neither the brand nor the technological platform to conduct the business was owned by eBay France but by other entities of the eBay Group.
What’s next? If the taxpayer were to appeal the decision to a higher court, further developments with respect to this case could be expected. As is often the situation when a court decision is in line with an assessment made by the French tax administration, tax professional anticipate that the tax authorities could use and cite to this decision in future field tax audits.
For more information, contact a tax professional with KPMG’s Global Transfer Pricing Services group (Fidal) in Paris:
Olivier Kiet, Partner
+ 33 1 55 68 1615
Pascal Luquet, Partner
+ 33 1 55 68 15 22
Kate Noakes, Partner
+ 33 1 55 68 16 57
Xavier Sotillos Jaime, Director
+33 1 55 68 14 85
* FIDAL is an independent legal entity that is separate from KPMG International and its member firms.