The exploitation of trademark rights and internet domains constitutes a commercial activity with the consequence that losses incurred in this area must be taken into account for income tax purposes. This was decided by the 13th Senate of the Münster Fiscal Court in its ruling of 15 September 2021(Case No. 13 K 3818/18 E).
Since 1998, the plaintiff had trademark rights registered in his name against payment of a corresponding fee, which he wanted to sell to potentially interested parties. He also developed new brand names, had them protected and in some cases also acquired the matching internet domain. According to the plaintiff's ideas, interested parties were to buy the corresponding trademark rights and internet domains from him in order to use them themselves. He expected that any interested parties would learn of the plaintiff's conflicting rights as a result of a register enquiry and would then enter into sales negotiations with him. The plaintiff capitalised the expenses for securing the trademark rights as intangible fixed assets. For the years 1999 to 2007, the tax office took into account income from the exploitation of trademark rights together with domains. Against the background that trademark rights generally expire after ten years unless they are renewed against payment, the plaintiff decided in 2009 not to renew the expiring trademark rights. For the years 2009 and 2010, the plaintiff calculated asset disposals based on the respective book values of the trademark rights and domains and reported losses from his activities in his income tax returns.
The tax office refused to take the declared losses into account on the grounds that the activity of exploiting trademark rights and domains did not constitute a commercial activity. Since the purchase of the IP rights, there had been no participation in general commercial transactions, as the plaintiff expected his potential customers to contact him. In his counterclaim, the plaintiff claimed in particular that he had acted with the intention of making a profit and had behaved in accordance with the market.
The 13th Senate of the Münster Fiscal Court upheld the action. The losses from the activity of exploiting trademark rights and domains were to be taken into account, as the plaintiff's activity was a commercial activity. The plaintiff had carried out the activity independently and on a sustained basis. He had also participated in general commercial transactions. The fact that he had not advertised the transfer of the trade mark rights registered in his favour on the market did not contradict this, because according to the trade mark law existing in the years in dispute, this would have been an obstacle to the exploitation of the formal registration obtained by the plaintiff. It had been part of the plaintiff's business concept to create the impression that he had decided to sell a trade mark used by him on the basis of a corresponding offer by the interested party. The plaintiff had also acted with the intention of making a profit. Finally, the activity carried out by the plaintiff could not be classified as private asset management. In this respect, the general principles were to be taken as a basis, which were oriented towards the "image of trade" and the "producing entrepreneur". According to these principles, the fact that the plaintiff had not merely bought and sold the trade mark rights, but had created them himself by registering them, spoke decisively in favour of a commercial character of the plaintiff's activity. As a result, his activities were "similar to those of a producer". The plaintiff's activity had also not been designed to generate a long-term profit, but to generate income by transferring the trade mark rights registered in his favour to third parties as quickly as possible.
The Senate allowed the appeal to the Federal Supreme Finance Court for the further development of the law.
Source: Press release no. 17 of the Münster Fiscal Court dated 01.12.2021
