The Internet Protocol (IP) address has long been treated as a technical resource, essential for connecting devices and networks. For decades, it was distributed freely to organizations, governments, and service providers by Regional Internet Registries (RIRs). However, the growth of the internet and the exhaustion of IPv4 addresses has transformed these digital identifiers into valuable and tradable assets. The notion that something as intangible as an IP address can be sold or transferred raises important legal, tax, and compliance questions.

This article explores the framework that governs IP address allocation and transfer, how companies are increasingly treating them as assets, and what legal opinions in India suggest about their treatment under tax law.

IP addresses are not allocated randomly. They are managed by five Regional Internet Registries (RIRs):

• APNIC for the Asia Pacific region

• ARIN for North America

• RIPE NCC for Europe, the Middle East, and parts of Central Asia

• LACNIC for Latin America and the Caribbean

• AFRINIC for Africa

These registries, in turn, receive address blocks from the Internet Assigned Numbers Authority (IANA), which sits at the top of the allocation chain. Organizations seeking IP resources must become members of their regional registry and comply with its allocation and usage policies.

In the early days of the internet, addresses were plentiful and often allocated in large blocks. With the explosive growth of online services, IPv4 addresses became scarce. By the mid-2010s, most registries had officially exhausted their IPv4 pools. Although IPv6 was introduced as a long-term solution, adoption has been gradual, leaving IPv4 addresses in high demand.

This scarcity gave rise to a secondary market where entities that hold unused address blocks can transfer them to others who need them. The registries recognize this reality and have put in place policies for both intra-regional and inter-regional transfers.

The process of transferring IP addresses is structured, and compliance with registry policies is essential.

1. Verification of Ownership
The seller must be the registered holder of the IP address block in the registry’s database. Disputes or outdated organizational details must be resolved before a transfer can even be considered.

2. Transfer Types

Ø  Intra-RIR Transfers: These are transfers within the same region, such as between two APNIC members. The buyer may need to demonstrate how the addresses will be used over a 24-month period.

Ø  Inter-RIR Transfers: These occur across different registries, for example from APNIC to ARIN. In such cases, both registries’ policies apply, making the process more complex.

3. Transfer Size
The minimum transferable block is a /24, which corresponds to 256 IP addresses. This threshold ensures that addresses are not fragmented into uneconomical or unmanageable units.

4. Fees and Membership
Both sellers and buyers may be liable to pay transfer or membership fees to their respective registries. For instance, APNIC requires the transferring entity to pay the outbound transfer fee, while ARIN may impose pre-approval and administrative charges on the recipient.

5. Completion of Transfer
Once approved, the registry updates its Whois database to reflect the new owner. The seller relinquishes all rights, and the buyer assumes full responsibility for the resources.

6. Contractual Documentation
Although registry approval updates the official ownership records, prudent practice requires execution of a separate Asset Transfer Agreement. This agreement records the commercial terms, warranties, indemnities, and allocation of risk between the parties. It provides a legal basis for recourse in case of disputes that registry records alone cannot address.

The role of brokers has also become significant. Since this market is niche, many organizations rely on specialized brokers to identify buyers and facilitate the transaction. However, the broker must be authorized by the actual legal owner, as affiliates without ownership rights cannot independently enter into binding agreements.

One of the most intriguing legal questions concerns how Indian tax law treats the sale of IP addresses. The Income Tax Act, 1961 does not explicitly define IP addresses as assets. However, jurisprudence on intangible property has set the stage for interpretation.

In a case before the Delhi High Court (CIT v. MediWorld Publications Pvt Ltd), the Court held that the transfer of intangible assets could be taxed under the head of capital gains. Applying this reasoning, IP addresses, being intangible rights with monetary value, qualify as capital assets.

The implications are significant:

• If held for less than 24 months, gains from the sale are classified as short-term capital gains and taxed at 20 percent.

• If held for more than 24 months, the sale qualifies as long-term capital gains, attracting a tax rate of 12.5 percent.

Given that many companies acquired IP blocks years ago, most transactions would fall into the long-term category. This provides some certainty, although one must note that the law may evolve as the market matures and tax authorities issue further clarifications.

Before entering into an IP address sale, companies should conduct internal checks to ensure:

• Their ownership is clearly reflected in the registry database. If the organization’s name has changed, a formal request for name correction must be submitted to the registry.

• No litigation or disputes exist regarding the IP block.

• All required forms and templates provided by the registry are completed accurately.

Interestingly, Indian law does not impose additional statutory requirements specific to IP address transfers. The enforceability of such transactions depends primarily on compliance with registry policies and execution of valid contracts.

The recognition of IP addresses as assets capable of being sold, taxed, and transferred points to a wider shift in how intangible digital rights are treated. Some broader implications are worth considering:

• Financialization of IP Resources: Just as spectrum licenses became tradable commodities, IP addresses too are now entering asset markets. One can imagine future scenarios where they may be securitized or pledged as collateral.

• Regulatory Arbitrage: Since each registry sets its own rules, entities may explore jurisdictions with more favorable transfer regimes. This raises questions of consistency and harmonization across regions.

• Transition to IPv6: While IPv6 is the long-term solution to address scarcity, its slow adoption means IPv4 blocks retain significant commercial value. Organizations holding unused blocks now face strategic decisions about monetization.

• Corporate Governance: For companies with global affiliates, clarity on which entity owns the addresses is vital. Ownership must align with contracts and registry records to avoid disputes.

The sale of IP addresses is no longer an obscure technical procedure but a legitimate commercial transaction with real legal and tax consequences. Regional registries have responded by creating structured transfer policies, and courts have indirectly recognized these assets as capital property. For companies, the key lies in approaching such sales with the same rigor as any other asset transfer: verifying ownership, complying with registry rules, executing robust contracts, and planning for tax implications.

As scarcity deepens, the market for IP addresses is likely to grow, raising further questions about valuation, regulation, and cross-border taxation. What was once a simple numerical identifier has now become part of the expanding universe of intangible digital assets.

About the authors: Vikrant Rana is the Managing Partner of SS Rana & Co. Shantam Sharma is a Senior Associate at the firm.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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