SecProbe.io

CORRESP
1
filename1.htm

SEC Response Letter

 eBay Inc.

2065 Hamilton Avenue

 San Jose, CA
95125

 May 14, 2015

 VIA HAND DELIVERY AND EDGAR

Ms. Mara L. Ransom

 Assistant Director

Division of Corporate Finance

 U.S. Securities and Exchange
Commission

 100 F Street, N.E.

 Washington, D.C. 20549

Re:
eBay Inc.

 Annual Report on Form 10-K for Fiscal Year Ended December 31, 2014

Filed February 6, 2015

 File
No. 000-24821

 eBay Inc.

Quarterly Report on Form 10-Q for the Quarterly Period Ended March 31, 2015

Filed April 23, 2015

 File
No. 000-24821

 Dear Ms. Ransom:

 Thank you for your
letter dated May 7, 2015 (the “Letter”) addressed to eBay Inc. (the “Company” or “eBay”) setting forth comments of the staff (the “Staff”) of the Division of Corporation
Finance of the U.S. Securities and Exchange Commission (the “Commission”) on the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (the “Form 10-K”) and the Company’s
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015 (the “Form 10-Q”). The Letter was also addressed to PayPal Holdings, Inc. (“PayPal Holdings”) and set forth the comments of the Staff
on PayPal Holdings’ Registration Statement on Form 10-12B. PayPal Holdings is responding to those comments (numbered 1 to 11 in the Letter) by a separate letter to the Staff on the date hereof.

For the Staff’s convenience, the text of the Staff’s comments (numbered as they are in the Letter, beginning with comment number 12) is set
forth below in bold, followed in each case by the Company’s response. Terms not otherwise defined in this letter shall have the meanings set forth in the Form 10-K or Form 10-Q, as applicable.

 eBay Inc. Form 10-K for Fiscal Year Ended December 31, 2014

General

12.
The written representations we requested in our prior letter were to be from the Company. However, your response letter was from your external counsel. Please provide the representations previously requested in a
written statement from the Company.

 Response: We acknowledge the Staff’s comment and have drafted
this response letter to respond to the Staff’s comments that relate to eBay’s Form 10-K and Form 10-Q. The Company also hereby affirms the representations made in the April 9, 2015 response letter.

13.
A Settlement Agreement by and between the Department of the Treasury’s Office of Foreign Assets Control (OFAC) and PayPal dated March 23, 2015 indicates that your subsidiary PayPal processed transactions
involving Cuba and Sudan. We note also that recent news reports suggest that items recently taken from Syria are being sold on eBay and that PayPal is being used to send money to Syria.

Cuba, Sudan and Syria are designated by the Department of State as state sponsors of terrorism, and are subject to U.S. economic sanctions
and export controls. Please describe to us the nature and extent of your past, current, and anticipated contacts with Cuba, Sudan and Syria, whether through subsidiaries, affiliates, partners, joint ventures or other direct or indirect arrangements.
In this regard, we note your disclosure, on pages 42 and F-31 of the 10-K, regarding PayPal’s activities that may have violated OFAC sanctions regulations. You should describe any services, products, information or technology you have provided
to Cuba, Sudan or Syria, directly or indirectly, and any agreements, commercial arrangements, or other contacts you have had with the governments of those countries or entities they control.

Response: PayPal, Inc. (“PayPal”) does not do business with or have agreements with the governments of Cuba,
Sudan or Syria or any entities they control. PayPal prohibits access to its website from Cuba, Sudan, Syria, North Korea and Iran, and does not allow people or companies in those countries to register for PayPal accounts. We block IP addresses known
to be associated with entities in these countries, and devote significant resources to avoid doing business with sanctioned countries and to preventing payments to or from them.

Since April 2013, PayPal has been scanning transactions in real time, looking for payments in possible violation of OFAC regulations, including
payments to or from Cuba, Sudan and Syria. We block or reject any such payments, as appropriate, when identified. Prior to 2013, PayPal also scanned transactions, although not in real time. As a result, before April 2013, some payments were
processed before they were identified as prohibited. PayPal self-disclosed the processing of these payments to OFAC as possible violations. PayPal’s March 2015 settlement with OFAC covered such transactions

 2

between 2009 and 2013 in possible violation of the Cuba, Sudan and Iran sanctions; there were no alleged violations of the Syria sanctions in the settlement. The violations did not include any
payments to or from the governments of Cuba, Sudan or Syria. Many of the violations related to embargoed goods and involved sales of Cuban, Iranian, and Sudanese-origin goods and services by non-Cubans, Iranians and Sudanese, (e.g., the sale
of collectible Cuban stamps by non-Cubans). The settlement with OFAC covered the following transactions relating to Cuba, Iran and Sudan:

•

98 transactions totaling $19,334.89 relating to alleged violations of the Cuban Assets Control Regulations;

•

125 transactions totaling $8,257.66 relating to alleged violations of the Iranian Transactions and Sanctions Regulations; and

•

33 transactions totaling $3,314.43 relating to alleged violations of the Sudanese Sanctions Regulations.

In April 2013, we introduced proprietary systems that allow for state-of-the-art, real-time scanning of payments to block or reject, as
appropriate, prohibited payments before they are processed. Recently, some media have inaccurately reported that ISIS has illegally trafficked and profited from cultural goods on eBay. eBay and PayPal have found no evidence that the reported sales
of two coins occurred, or that those coins were real, even after contacting the U.S. State Department. While eBay does see the illegal trafficking of cultural goods as a threat, we invest in this area and have strong partnerships with experts to
identify illegal activity in this space.

14.
You disclose on pages 42 and F-31 PayPal’s settlement discussions with OFAC regarding possible violations of sanctions regulations arising from PayPal’s practices between 2009 and 2013. You also disclose
that PayPal has reported to OFAC more recent transactions that may have violated sanctions regulations. To the extent the possible violations you disclose are not covered by the March 23 Settlement Agreement, please tell us the nature of the
possible violations, including the countries involved, and the maximum amount of the OFAC penalties to which PayPal may be subject as a result of the possible violations.

Response: As noted in the Registration Statement, the Company has self-disclosed to OFAC certain possible violations that may
have occurred subsequent to the implementation of the real-time scanning systems and that were not covered by the settlement. These instances, which are still under review, are of the same nature as those covered in the settlement, namely
transactions processed referencing sanctioned countries (Cuba, Iran, Sudan, Syria, Burma and North Korea) or embargoed goods, or involving entities on OFAC’s “Specially Designated Nationals” list. Most of these transactions were
appropriately flagged by the Company’s real-time scanning systems, which of necessity capture many “false positives” (due to such factors as the common or similar sounding names or email addresses) that then have to be manually
reviewed for conformance. A majority of these self-reported transactions were processed (or rejected instead of being blocked) due to human error. We have invested, and are continuing to

 3

invest, significant resources in technology, training and education to continually improve our systems and processes. It is impossible to predict how and when OFAC will assess these possible
violations. If OFAC considers them to be non-egregious, the maximum penalty would be half of the transaction value (PayPal’s average payment is $68). If OFAC considers them to be egregious, the maximum penalty could be $125,000 per
violation. Although there is no way for us to be certain, we believe that any penalty that OFAC ultimately chooses to bring against us for these self-reported transactions would be much smaller than the maximum possible penalty given the substantial
efforts we continue to make to improve our systems and processes in this area, the size and number of transactions, and the fact that some of the transactions that were incorrectly processed were nonetheless rejected so that no money was transferred
despite the error.

15.
Please discuss the materiality of any contacts with Cuba, Sudan and Syria you describe in response to the comments above, and whether those contacts constitute a material investment risk for your security holders.
You should address materiality in quantitative terms, including the approximate dollar amounts of any associated revenues, assets, and liabilities for the last three fiscal years and the subsequent interim period. Also, address materiality in terms
of qualitative factors that a reasonable investor would deem important in making an investment decision, including the potential impact of corporate activities upon a company’s reputation and share value. Various state and municipal
governments, universities, and other investors have proposed or adopted divestment or similar initiatives regarding investment in companies that do business with U.S.-designated state sponsors of terrorism. You should address the potential impact of
the investor sentiment evidenced by such actions directed toward companies that have operations associated with Cuba, Sudan and Syria.

Response: There have been no contacts of any kind between PayPal and the governments of Cuba, Sudan or Syria, or any entities
that they control. As explained above, PayPal’s settlement with OFAC covered payments relating to embargoed goods or transactions involving Cuban nationals. These transactions were not material – either individually or on an aggregate
basis. The settlement with OFAC covered the following transactions relating to Cuba, Iran and Sudan:

•

98 transactions totaling $19,334.89 relating to alleged violations of the Cuban Assets Control Regulations;

•

125 transactions totaling $8,257.66 relating to alleged violations of the Iranian Transactions and Sanctions Regulations; and

•

33 transactions totaling $3,314.43 relating to alleged violations of the Sudanese Sanctions Regulations.

Item 9A: Control and Procedures, page 72

16.
 We note in your response to comment 34 that the internal control relevant to the accounting error was a quarterly analysis to support the booking
or release of a

 4

valuation allowance. You state that deficiency was in the control design as this was a complex intercompany transaction that had non-routine tax accounting implications. You state that the
maximum exposure of the control failure was not material and refer to the amount of valuation allowances on capital loss carryover and operating loss carryforward. Please address the following:

•

Describe in greater detail the specific nature and design of the control that failed. Also as it relates to the precision of the control, describe how the review control was appropriately executed even though
the accounting literature was incorrectly applied;

•

Explain how the design of the control “did not extend to include full documentation of the resulting tax accounting consequences that would be required under ASC 740 – Income Taxes.” Include
also a detailed discussion of the nature and cause of the control deficiency;

 Response: As noted in our
prior response, the control that failed is a quarterly control (An analysis is performed quarterly to support the booking or release of valuation allowances). The underlying process of the control includes appropriate eBay personnel gathering and
analyzing information to determine whether a valuation allowance is required to be established or released. The analysis is based on information including forecasted profitability by entity, business strategy, transactions and events within the
business, and viable planning strategies. The scope of the analysis performed includes all entities/jurisdictions and all types of attributes, and there is no threshold applied for the performance or review of the analysis. If a judgment is made
regarding the actual recording or release of a valuation allowance due to immateriality, such judgment would be made as an outcome of the review of the quarterly analysis and is documented as part of the review sign-off. Review of the analysis
performed includes review of the calculations and supporting documentation for all valuation allowance positions. The supporting documentation and calculations are comprised of evidence prepared by eBay’s tax personnel (documentation of viable
tax planning strategies) or gathered from other finance functions, including treasury (detailed securities trading and investment activity) and FP&A (forecasted profit/loss by entity). This documentation is supplemented by advice and information
provided by external tax advisors. The objective of the control is to ensure valuation allowance bookings and releases are appropriately calculated based on supporting information and that appropriate judgments and accounting standards are applied
regarding the timing and basis of the bookings or releases.

 As part of evaluating the appropriateness of the release of the
particular valuation allowance driving the identified deficiency, our analysis and determinations with respect to a supportable release of the valuation allowance were performed and were appropriately executed consistent with the guidance in ASC
740. However, specific to this particular intercompany transaction, intra period allocation rules should have been specifically and rigorously analyzed related to appreciation on Available-for-Sale (AFS) Securities when there is a valuation
allowance release in order to determine which portion of the benefit resulting from the valuation allowance release should be recorded

 5

in continuing operations and which portion should be recorded in other comprehensive income. We spent a significant amount of time evaluating the intercompany transaction which was done as a tax
planning strategy to utilize capital losses prior to expiration. As part of this assessment we engaged external tax advisors in planning and designing the execution of this transaction and to ensure a timely transaction that would result in the
utilization of the capital losses and support a subsequent release of the valuation allowance. This included assessing:

•

Whether this intercompany transaction resulted in a true realization event of the capital loss carryforwards under the tax rules and considering the relevant accounting guidance;

•

The new basis of the investment after the intercompany transaction and the cash tax savings from this transaction; and

•

The appropriate time of the release of the valuation allowance based on the guidance in ASC 740 – As part of this, we evaluated the legal, regulatory, commercial and strategic reasons of such a sale, soliciting
input from other internal stakeholders, including corporate development, treasury and FP&A.

 After careful consideration
of the applicable accounting literature and accounting firm guidance, we concluded that the fourth quarter of 2014 was the appropriate time to release the valuation allowance set up against all prior capital losses. We also considered the intra
period allocation rules, including discussions with our external tax advisors and independent auditors, however the full tax accounting analysis of the application of these rules was not