Taxing decisions: domain names in France
In a decision dated February 9, 2012, the Tribunal Administratif de Montreuil (administrative court of Montreuil) ruled for the first time on the fiscal nature of domain names, in a case involving auction site eBay.
The company eBay France is the holder of the ebay.fr domain name assigned by the French Regulation Authority (AFNIC) registry. 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.
“FEES IN RELATION TO TRADEMARK SEARCHES AND TRADEMARK FILING AT THE OFFICE WILL BE CONSIDERED AS EXPENSES AND SHALL BE TREATED AS TAX-DEDUCTIBLE EXPENSES FOR INCOME TAX PURPOSES.”
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 interpreted this as a transfer of profits and reinstated into the taxable income of eBay France the royalties it should have received from this arrangement.
The decision does not, however, mention the amount of royalties that eBay France should have received, according to the tax authorities.
This transfer of profits, which is without justification according to the French Court, also generates a withholding tax, which is paid on the income distributed by eBay France to eBay International AG, and which is estimated at 2 percent of the turnover of the ebay.fr website.
The status for trademarks is different. Following the adoption of new accounts rules resulting from the regulation of the Committee of Accounts regulation no. 2004606 and from the new General Chart of Accounts, the French tax authorities adopted a resolution on December 30, 2005, in relation to patents and trademarks.
The fees for patent filing can be either an accounting expense or an asset, while fees in relation to trademark searches and trademark filing at the office will be considered as expenses and shall be treated as tax-deductible expenses for income tax purposes.
The situation of trademark renewals is the same: they are also to be considered tax-deductible expenses.
This was confirmed by a decision of the Conseil d’État (the supreme court in this field of the law) on December 30, 2009, regarding an affiliate of the company L’Oréal. In this decision, the court decided that the fees paid after the filing or the acquisition of a trademark, only with the purpose of maintaining its value but without increasing this value, cannot be considered as elements of the asset, and have to be deducted from the income of the year during which they were paid.
This difference in tax treatment made between trademarks and domain names can be somewhat difficult to understand. However, this is the first relevant decision published in relation to domain names and one can hope that the French tax authorities will opt for a consistent and uniform treatment for all distinctive signs.
