Understand the concept of intermediary in terms of French VAT

Legislative and regulatory provisions, specifically article 256, V-1° and article 256 bis, III of the General Tax Code (FTC), define a specific legal and fiscal framework for taxable persons carrying out intermediary transactions relating to supplies of goods or services. A fundamental distinction is made between two categories of intermediaries.

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Criteria for distinguishing intermediaries

An intermediary is defined as an entity that intervenes between a party on whose behalf it acts, referred to as the committing, and a thirds. Intermediary activity is characterized by the following elements:

• On the legal side: The existence of a mandate contract stipulating the terms of remuneration of the intermediary as well as the obligation of accountability. This mandate empowers the intermediary to act on behalf of others, thus excluding any action on his own initiative.
• On the economic level: The intermediary does not use its own operating resources to provide the goods or services that are the subject of the transaction. Consequently, he never acquires ownership of the goods negotiated and is not the material performer of the services.

Tax legislation establishes separate VAT regimes depending on whether the intermediary acts on behalf of others or in his own name. It is specified that the legal status of the intermediary under commercial law (broker, commission agent, commercial agent) does not have a direct impact on fiscal qualification, which is determined by the objective, contractual and material conditions for carrying out the transaction.

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Intermediaries acting in the name and on behalf of others (qualified as “transparent”)

The intermediary qualified as “transparent” is explicitly presented to the third party contracting party (buyer or seller) as the direct agent of the principal. This qualification is retained when the following conditions are met:

• The contract concluded with the third party expressly states that the intermediary acts on behalf of others and mentions the complete identity of the principal (name or company name, address) as well as, where applicable for intra-community transactions, his VAT identification number.
• In the absence of a written contract, invoicing attests to this transparency: either the invoice is issued directly by the principal (through the sale) or addressed directly to the principal (through the purchase); or, if it is drawn up by or addressed to the intermediary, it unequivocally indicates that the intermediary is acting on behalf of the principal, by providing the above information.
• In the absence of any written document (contract or invoice), the legal circumstances (analysis of the mandate contract) or fact demonstrate that the third party was aware of the identity of the principal and of the capacity of representative of the intermediary.

Les commercial agents, as defined in Article L. 134-1 of the Commercial Code, generally fall under this category when they are subject to VAT.

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Intermediaries acting in their own name but on behalf of others (qualified as “opaque”)

Intermediaries that do not meet the transparency criteria described above are referred to as “opaque”. They contract with the third party on their own behalf, although acting on the instructions of a principal.

Les commissionaires, within the meaning of Article L. 132-1 of the Commercial Code, constitute the paradigmatic example of this category when they are subject to taxation. The treatment of consignment sales made by an opaque commission agent is specified in the Administrative Doctrine (BOI-TVA-CHAMP-10-10-40-20, I-C-3 § 326 to 329).

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VAT regime applicable according to the qualification of the intermediary

The tax treatment of intermediary transactions in terms of VAT differs substantially depending on the qualification of the intermediary.

Regime applicable to transparent intermediaries

The intervention of a transparent intermediary is considered to be a autonomous service delivery, distinct from the main intermediated transaction. The remuneration received by the intermediary (commission) is subject to VAT according to its own regime (rate, territoriality rules, etc.), regardless of the regime applicable to the delivery of goods or to the provision of services subject to the intermediary.

Legal derogations: In cases specifically provided for by law, the regime of intermediation services is aligned with that of the main transaction:

• Under article 259, 7° of the FTC, the intermediation service provided to a non-taxable customer is territorialized in France if the main transaction is itself located there.
• In accordance with article 263 of the FTC, the intermediation service is exempt from VAT if the main transaction benefits from an exemption provided for in article 262 ter of the FTC (in particular for intra-community deliveries).

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Regime applicable to opaque intermediaries

A legal fiction applies to opaque intermediaries: they are deemed to have personally acquired and then delivered The good, or have personally received and then provided the service. They are therefore treated for tax purposes as purchasers and retailers.

• A commission agent intervening “for sale” is deemed to acquire the goods from his principal and then deliver them to the third party purchaser.
• A commission agent intervening “at the time of purchase” is deemed to acquire the goods from the third party supplier and then deliver them to his principal.

This pattern has two major fiscal consequences:

1. The intermediary is deemed to deliver the goods or provide the service himself. (to the third party in the case of a sale intermediary, to the principal in the case of a purchase intermediary). The tax base for this deemed transaction corresponds to prizes total paid by the final purchaser, including the intermediary's commission (FTC, art. 266, 1-b, para. 2).
2. The original seller (the principal for an intermediary for a sale, the third party supplier for an intermediary in the purchase) is deemed to be making a delivery of goods or a supply of service to the intermediary. The tax base for this first deemed transaction is equal to price excluding commission (FTC, art. 266, 1-b, para. 2).

Note: The remuneration (commission) of the opaque intermediary is never subject to VAT separately; it is integrated into the tax base of the deemed resale transaction carried out by the intermediary.

These two successive transactions (deemed purchase and deemed resale) are subject to the VAT regime (rate, exemption, territoriality) applicable to the nature of the goods or the intermediated service. The event giving rise to VAT for these two transactions is identical and occurs when the main transaction (the one in which the intermediary is involved) is carried out (FTC, art. 269, 1-a ter; cf. Administrative Doctrine BOI-TVA-BASE-20-40, II-B § 100).

Figure (opaque intermediary, actors established in France, 20% VAT):

Total transaction amount: €10,000 excluding VAT (commission included).

The applicable VAT is 20%. The commission amount is €1,500 excluding taxes.

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For more examples, you can read our specific item published a few months ago.