A blackhole for intermediaries, market operators


Everyone knows that VAT is inter-alia relevant on each taxable provide made by a taxable individual. Within the rising age of e-commerce, it’s typically difficult to establish the precise provider and the corresponding VAT implications thereon.

FTA has clarified that within the context of e-commerce, digital marketplaces might function below any of the 2 classes:

. promote items or providers themselves; or

. act as intermediaries between the provider and the recipient of products/providers

Many market operators wish to imagine that they’re solely performing as an middleman connecting the precise provider and the precise recipients. They typically calculate their VAT legal responsibility solely on the fee contemplating that it as the one worth addition supplied by them.

Nonetheless, the VAT remedy of provides utilizing intermediaries will rely on the association between the provider, the middleman and the recipient of the availability.

The middleman might function both as a disclosed agent or as an undisclosed agent.


A ‘disclosed agent’ is an agent which acts on behalf and within the identify of a principal provider. In disclosed company conditions, the end-customer of the availability is aware of that it’s coping with an agent of a principal provider, even when the end-customer might not have any direct communication with the principal provider.

An undisclosed agent is an agent performing in its personal identify, the place the end-customer has no data, and can’t be moderately anticipated to have data, that the agent is performing on behalf of a principal provider.

In case of a disclosed agent, then the availability is handled as made instantly by the principal provider. The middleman is chargeable for VAT solely on its fee.

Alternatively, in case of an undisclosed agent, there are two provides for VAT functions specifically, (i) from the principal provider to the middleman, and (ii) from the middleman to the end-customer. The middleman could be liable to VAT on the complete consideration acquired from the end-customer.

In a landmark case, the UK courts have held that the terminology in an settlement isn’t the essentially the primary consider figuring out whether or not company does or doesn’t exist. The utilization of the phrases ‘company’ and ‘fee’ alone doesn’t decide the connection between the events. As per FTA steerage additionally, the contractual preparations between the events needs to be considered to find out the true relationship.

Additional, it’s generally accepted that the components such because the powers exercised by the agent, restrictions on the precise service suppliers, understanding of a typical client, worth negotiation and many others needs to be thought-about in figuring out the standing of the agent.


Other than company contracts, it is also attainable that the middleman acts as a principal contractor itself with a back-to-back preparations with different service suppliers.

On a dispute regarding commerce follow, and never regarding VAT, he European Court docket of Justice (ECJ) and UK Supreme Court docket had examined the enterprise mannequin of a trip hailing firm.

It was held that the trip hailing firm couldn’t be considered as merely an agent however needs to be thought to be the contractor.

The ruling had a direct consequence on VAT liabilities and created a big disruption. The trip hailing firm turned chargeable for VAT on the complete consideration acquired from the end-customer.


Accurately figuring out the standing of a provider is essential to make sure VAT compliance and scale back penalty dangers.

E-commerce operators like ride-hailing corporations (as passenger transport is exempt), vacation residence rental corporations, aggregators and many others. ought to overview their enterprise fashions and VAT positions. If a market is working as a principal contractor itself, or as an undisclosed agent, it may very well be liable to vital VAT implications.

The author is the md of AskPankaj Tax Consultants. Views expressed are his personal and don’t replicate the newspaper’s coverage.

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