What is the difference between an undisclosed and a disclosed agent for VAT purposes (French perspective)?

Attention, the rules applicable in terms of intermediation are autonomous from a tax point of view.

The administration carries out an objective reading of the situation in light of the applicable texts and factual circumstances. The Terms or contractual provisions alone are not sufficient to frame the fiscal status of an intermediation scheme. The latter must comply with a set of criteria set out in the texts.

Intermediation corresponds to an intermediary activity between two persons carried out by a person (the agent) for the benefit of one of the parties (the principal).

As a matter of principle, agents do not become owners of the goods or provide the services with their own operating resources in connection with the transaction for which they act as intermediaries.

They therefore differ from operators who make purchases to resell goods (distributor for example).

In terms of VAT, two types of intermediaries are recognized:

• Disclosed agents who act in the name and on behalf of others;
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• Undisclosed agents who act in their own name but on behalf of others. The latter are similar to commission agents as defined by the Commercial Code.

A. Transparent intermediaries

How do you qualify as a disclosed agent?

The disclosed agent acts in the name and on behalf of a third party. The French tax authorities draw up a list of alternative conditions to ensure that the parties are in a position to identify the role of the intermediary:

• the contract between the intermediary and the third party must clearly specify that the intermediary operates on behalf of a third person (acts on behalf of others). To meet this requirement, the contract must detail the name or legal name, address, as well as the VAT number of the principal for intra-community transactions;
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• in the absence of a written contract, the invoice is drawn up directly by the principal (sales intermediation), or sent directly by the third party to the principal (purchase intermediation). In the event that the invoice is drawn up by the intermediary or sent to the intermediary, it must show that the latter is acting in the name and on behalf of the principal;
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• in the absence of an invoice (for example, transactions with individuals who are not subject to taxation or do not involve the issuance of invoices, such as certain financial transactions) and a written contract, the administration looks at the legal circumstances (contract between the intermediary and the principal) or in fact in order to establish that the third party was aware of the fact that the intermediary was acting on behalf of others and of all the elements identifying the principal.

Who recognizes turnover?

Transactions carried out by the transparent intermediary are deemed to be carried out in the name and on behalf of the principal.

The sales made therefore constitute the turnover of the principal and not of the intermediary/agent.

Third party accounts, documents formalizing the expenses managed by the agent, there are numerous formalities to ensure that the formalism that applies to this type of scheme is perfectly maintained and to limit any risk of questioning in the event of a tax audit.

How does a disclosed agent get paid?

The disclosed agent receives a commission that must be invoiced separately.

This remuneration is independent of the main transaction. It is exclusively this invoice that will constitute the Company's taxable turnover.

It must also have a specific formalism in order to limit any risk of being questioned by the tax authorities.

Is the disclosed agent fiscally responsible?

Above all, fiscal disclosed agent model has an impact on accountability: it is the principal who is in principle fiscally responsible.

In fact, both in terms of determining the VAT regime and any errors that may occur in the invoices, it is the principal who is responsible within the meaning of the applicable regulations. In the event of a tax audit, it is therefore the principal who may be subject to these penalties.

It is therefore essential for the principal to ensure that the transactions carried out through his agent are in compliance because he is the one who bears the risk of error in the event of an inspection.

And even if these liability issues can be compensated by virtue of the mandate that binds the intermediary to its principal, it is a contractual agreement that will be ignored by the tax authorities. In the eyes of tax law, only the principal can be held responsible.

B. Undisclosed agent (commissionaires in French)

How do you qualify as a undisclosed agent?

An intermediary that does not meet the conditions of transparency is considered to be opaque. This is a broom category.

What are the characteristics of the undisclosed agent?

The undisclosed agent acts in its own name but on behalf of the principal. This definition is similar to that of the French Commercial Code: “The commission agent is one who acts in his own name or under a social name on behalf of a principal.” (Commercial code, L. 132-1).

However, the undisclosed agent is in principle not the legal owner of the goods or the effective provider of the services provided.

Through the use of a fiction applicable to VAT, the undisclosed agent is deemed to acquire the goods and resell them or receive the services and provide them in turn. Its commission thus constitutes an increase in the value of the transactions acquired: in other words, the commission becomes an element of the resale price (like a distributor). There is thus an identity between the transaction acquired by the undisclosed agent and the one that he is deemed to resell.

The tax authorities specify, in line with European case law, that an intermediary is deemed to be undisclosed when it does not meet the alternative conditions specified above.

In addition, in some cases, the regulations provide for cases in which:

• intermediaries are deemed to act as undisclosed agent based on a simple presumption. This is the case of intermediaries in the provision of electronic services (Reg. EU 282/2011, art. 9 bis 1) which therefore tend to be legally structured to be in line with this tax status;
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• or on a mandatory basis. For example, marketplace operators for transactions under which the regulations provide that they are deemed to acquire and resell the goods so that they collect VAT in place of the referenced merchants (French Tax Code, 256 V, 2). Some of these operators record transactions on behalf of third parties as long as they are only considered to be opaque intermediaries for VAT purposes. In this context, in the absence of a clear position, the basis to be retained for C3S (i.e. organic tax) is the subject of discussion between operators.

Accounting, the flows of purchases and sales are recorded by the undisclosed agent in expense and income accounts. The transactions carried out for sale by an undisclosed agent are therefore constitutive of its turnover.

Intermediaries: which scheme should you choose?

Depending on the type of activity, the difficult question of which status should be preferred may arise. And as you will have understood, the choice of regime has an impact on the entire fiscal and accounting structure of the scheme.

It is therefore necessary to question the best scheme to consider according to one's activity and especially to respect each obligation linked to this pattern in order to limit any risk of discussion with the administration.

Which companies are concerned?

All companies that connect sellers and buyers are concerned with these issues. Here, we mainly aim at marketplaces or Marketplaces.

But this intermediation scheme also applies to more traditional activities. In particular, one can think of the specific regime for travel agencies for whom arbitration between undisclosed or disclosed agents can have serious consequences on the determination of applicable VAT rules.

How can we support you on this subject?

To best assist you in managing your intermediation scheme, the Cyplom Avocats teams can offer you the following support:

• Structuring the project during its design. This necessary step allows you to start your activity in perfect accordance with the applicable regulations. Depending on the type of activity, our analysis can be supplemented by a request for a rescript in order to provide you with all the comfort you need to deploy your activity.
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• Risk audit: as part of your business or during a sale or fund raising, we intervene to secure the regime that has been put in place, identify risk areas and areas for improvement.
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• Tax audit: in the event that a scheme is questioned by the tax authorities, we work alongside you to assist you in exchanges with the tax authorities.