eBay 2004 Annual Report Download - page 48

foreign exchange rate Öuctuations as the Ñnancial results of the applicable subsidiaries are translated from the
local currency into U.S. dollars upon consolidation. If the U.S. dollar weakens against foreign currencies, as it
did in 2004, the translation of these foreign-currency-denominated transactions will result in increased net
revenues, operating expenses, and net income. The change in weighted average foreign currency exchange
rates in 2004 relative to the comparable rates used in preparation of our consolidated 2003 Ñnancial statements
resulted in an increase in net revenues of approximately $129.9 million and an increase in aggregate cost of
revenues and operating expenses of approximately $58.4 million. Similarly, our net revenues, operating
expenses, and net income will decrease if the U.S. dollar strengthens against foreign currencies. As exchange
rates vary, net sales and other operating results, when translated, may diÅer materially from expectations. In
particular, to the extent the U.S. dollar strengthens against the Euro and British Pound, our European
revenues and proÑts will be reduced as a result of these translation adjustments. In addition, to the extent the
U.S. dollar strengthens against the Euro and the British Pound, cross-border trade related to purchases of
dollar-denominated goods by non-U.S. purchasers may decrease, and that decrease may not be oÅset by a
corresponding increase in cross-border trade involving purchases by U.S. buyers of goods denominated in
other currencies. While we from time to time enter into transactions to hedge portions of our foreign currency
translation exposure, these hedges are relatively costly and, even with them in eÅect, it is impossible to
perfectly predict or completely eliminate the eÅects of this exposure.
Our business and users may be subject to sales tax and other taxes.
The application of indirect taxes (such as sales and use tax, value added tax, or VAT, goods and services
tax, business tax, and gross receipt tax) to e-commerce businesses such as eBay and our users is a complex
and evolving issue. Many of the fundamental statutes and regulations that impose these taxes were established
before the growth of the Internet and e-commerce. In many cases, it is not clear how existing statutes apply to
the Internet or e-commerce. In addition, some jurisdictions have implemented or may implement laws
speciÑcally addressing the Internet or some aspect of e-commerce. The application of existing, new, or future
laws could have adverse eÅects on our business.
Several proposals have been made at the U.S. state and local level that would impose additional taxes on
the sale of goods and services through the Internet. These proposals, if adopted, could substantially impair the
growth of e-commerce, and could diminish our opportunity to derive Ñnancial beneÑt from our activities. In
December 2004, the U.S. federal government enacted legislation extending the moratorium on states and
other local authorities imposing access or discriminatory taxes on the Internet through November 2007. This
moratorium does not prohibit federal, state, or local authorities from collecting taxes on our income or from
collecting taxes that are due under existing tax rules.
In conjunction with the Streamlined Sales Tax Project, the U.S. Congress continues to consider
overriding the Supreme Court's Quill decision, which limits the ability of state governments to require sellers
outside of their own state to collect and remit sales taxes on goods purchased by in-state residents. An
overturning of the Quill decision would harm our users and our business.
We do not collect taxes on the goods or services sold by users of our services. One or more states or
foreign countries may seek to impose a tax collection or reporting, or record-keeping obligation on companies
such as eBay that engage in or facilitate e-commerce. Such an obligation could be imposed if eBay were ever
deemed to be the legal agent of eBay sellers by a jurisdiction in which eBay operates. A successful assertion by
one or more states or foreign countries that we should collect taxes on the exchange of merchandise or services
on our websites would harm our business.
In July 2003, in compliance with the changes brought about by the European Union (EU) VAT directive
on ""electronically supplied services,'' eBay began collecting VAT on the fees charged to EU sellers on eBay
sites catering to EU residents. eBay also pays input VAT to suppliers within the various countries the company
operates. In most cases, eBay is entitled to reclaim input VAT from the various countries with regard to our
own payments to suppliers or vendors. However, because of our unique business model, the application of the
laws and rules that allow such reclamation is sometimes uncertain. A successful assertion by one or more
countries that eBay is not entitled to reclaim VAT would harm our business.
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