eBay case: domain name recognised as an intangible asset by the French Conseil d’Etat


On December 7, 2016, the Conseil d’Etat(tenth Chamber), issued a judgment which confirms that the domain name is in fact an intangible asset.

The issue of the classification of property as expenses or assets

article 137
Intellectual property cannot be easily classified in a company’s balance sheet. an option is available for the owner of the property: he can record it as an expense in the company’s profit and loss account, or as an intangible asset under the fixed assets of the company.

This is a major issue because the corporate tax base will not be the same for companies depending on whether the property is an expense or an intangible asset. Profit will be diminished if the property happens to be an expense for the business, compared to if it were an asset. Profit, naturally, is the result of the difference between revenue and expenses.

Requirements for intangible asset qualification

To be qualified an intangible asset, the property must meet three criteria:

– the property must be a regular source of profit and thus generate revenues regularly;
– the property must be sufficiently durable; it must thus remain in the business for some time;
– it must be transferable. To qualify as an intangible asset, meeting these three requirements is mandatory.

If any of these conditions is not met, the property will be requalified as an expense.

The eBay case, an illustration of the issue surrounding classification

According to the Conseil d’Etat, a domain name is an asset insofar as it meets these three requirements.

eBay was subject to a tax audit because their domain name did not appear on its balance sheet. eBay was initially liable to pay additional corporate income tax and additional contributions to this tax for the years ended December 31, 2003 and 2005, as well as corresponding penalties. The internet Empire subsequently filed a complaint with the Paris Administrative Court on March 20, 2012 in order to obtain relief from these tax surcharges.

eBay also brought action before the Administrative Court of Montreuil (Tribunal Administratif de Montreuil) to obtain relief from the withholding tax which the company had to pay as well as corresponding penalties for the years ended 2004 and 2005.

Following the dismissal of these applications by the Administrative Court of Paris (TA Paris du 1-2 dated March 20, 2012, no. 1001793) and by the Administrative Court of Montreuil (TA Montreuil,dated February 9, 2012, no. 1000879), the Administrative Court of Appeal dismissed both of the claimant’s applications (CAA Paris, April 30, 2016, no. 12PA02246 and 12PA02678). The company then brought the appeal before the Conseil d’Etat.

The Conseil d’Etat confirmed the calculation of the tax administration as well as the judgments of first instance and of appeal considering that the domain name “ebay.fr” met the three requirements for qualification as intangible asset.

First of all, the domain name confers to its owner exclusive rights to use it, making it a significant source of revenue. In this particular case, the domain name “ebay.fr”, registered with the AFNIC (Agence française pour le nommage Internet en coopération) is duly owned by EBay France but the right to use had been granted to EBay International AG. In fact, eBay France had granted a free license to its parent company. The tax authorities nevertheless considered that eBay France indirectly transferred its profits to its parent company by granting this right of use without levying fees. This was, therefore, a regular source of revenue for eBay France which it failed to report, as a consequence of analysing the situation as a mere necessity for administrative approval.

Furthermore, this exclusive right of use must be renewed each year with the AFNIC (in accordance with the provisions of the AFNIC naming policy), against payment of applicable fees necessary to carry out this formality. As a result, the asset’s lifespan in the company is sufficient to satisfy the requirement of sustainability: as long as the domain name is renewed, the exclusive right in favour of the owner shall remain in force.

Finally, the renunciation to renewthe domain name “ebay.fr” by iBazar, by way of compensation by the Ebay group, enabled EBay France to register this domain name immediately. As a result, this action was perceived by the administrative courts as a rights transfer from iBazar to eBay to use this domain name. This renunciation by a company to renew the domain name so that another may benefit from it, against payment of a fee, could be said to be a transfer of ownership and therefore an assignment.

In this case, a domain name that did not appear in the balance sheet was considered fraudulent and gave tax authorities the opportunity to recover eBay France. In the case, eBay France was this domain name’s registrant but its use was managed by eBay International AG. The fact that it meets all the three requirements for qualification as an intangible asset should have placed the domain name in eBay France’s balance sheet.