© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
Q5. Agents
EXISTENCE OF AGENCY
Contract of agency
- There must be contract between agent and principal granting the agency
"[52] As regards the first of those conditions, which is the one specifically mentioned by the referring court, it must be observed that the VAT Directive does not, admittedly, provide in what form, written or oral, the agency must be given. However, since Article 14(2)(c) of that directive expressly uses the term ‘contract’ and Article 28 of that directive states that the taxable person must act ‘on behalf of another person’, the Court concludes that there must be an agreement between the commission agent and the principal for the purpose of granting the agency concerned." (ITH Comercial C-734/19)
- No agency where T set prices and bore risk of bad debts
"[50] Weighting up all of the evidence, we find that neither AAC nor VTL were acting as agents. The companies clearly dealt with the cards as principal, buying and invoicing customers in their own names. They were able to set their own prices, albeit constrained by what the market would bear. The providers did not know the prices at which the cards were sold. The companies bore the risk of bad debts. Mr Javaid's evidence was that the companies made a profit on the sale of cards purchased, in addition to the amounts earned from the sale of the extra cards provided to them. None of this is consistent with an agency arrangement." (AA Com Limited v. HMRC [2025] UKFTT 1601 (TC), Judge Fairpo)
Testing the economic reality
- No reason why agent not able to fix its own commission by way of addition to price charged to customer
"[41] More specifically, there is no reason why an agent should not be able to fix its own commission. It is common for agents acting in the sale of financial products, eg many types of insurance policies, to do so, and it has been specifically held to be an arrangement which is consistent with agency – see Mercantile International Group plc v Chuan Soon Huat Industrial Group Ltd [2002] 1 All ER (Comm) 788..." (HMRC v. Secret Hotels2 Limited [2014] UKSC 16)
- Agency agreement may impose obligations on principal vis-a-vis supplies to customers
"[41] ...As to the other financial terms, it is true that the hotelier was obliged to compensate Med for its losses (including loss of commission) if it did not provide the accommodation it had agreed to provide to a customer, and that Med was entitled "to retain the equivalent of the last 100 bed-overnights as a guarantee to cover marketing costs for the next season". I do not see why such provisions are inconsistent with a principal-and-agent relationship: all they did was to reflect the relative negotiating positions of the parties. The fact that the hotelier agreed to do things which would be of benefit to people staying in the hotel is easily explained by the point that Med was anxious to maintain its goodwill among holiday-makers and travel agents, and was in a strong enough bargaining position to impose such terms on the hotelier." (HMRC v. Secret Hotels2 Limited [2014] UKSC 16)
- Agent doing things to protect its own goodwill (e.g. looking after customers) consistent with agency
"[44] ... As to Med's obligation to "try to provide" alternative accommodation, it is clear, as a matter of interpretation, that the obligation could, and no doubt in practice would, have involved Med procuring the provision of accommodation by another hotelier; in any event, the obligation was clearly included to protect Med's goodwill.
...
[46]...As to factor 1(b), it is true that Med appointed its own local agents to look after holiday-makers, but that was not inconsistent with its status as an agent of the hotelier, and is easily explicable by reference to Med's need to maintain goodwill in the holidaymaking market..." (HMRC v. Secret Hotels2 Limited [2014] UKSC 16)
- Agent may act in its own name vis-a-vis use of agent's website
"[46] There is nothing in factor (1)(a): until a customer selected a particular hotel on the website, Med had to deal with the customer in its own name, but that does nothing to undermine the point that, once a hotel was selected, Med acted as the hotelier's agent... " (HMRC v. Secret Hotels2 Limited [2014] UKSC 16)
- Agent may reserve supplies in its own name before supplying as agent
"[49] As to factor (8), it seems to me that there is nothing inconsistent in terms of logic or law in Med reserving a hotel room in its own name in anticipation of subsequently offering it on the market, on the basis that a customer who booked the room would not contract with Med, but would contract through Med with the hotelier. The purpose of Med reserving rooms in this way is obvious, namely to maximise its opportunity to earn commission and to maintain or improve its goodwill with potential customers. The fact that Med had to pay for the rooms it reserved is unsurprising, but such payments were always recoverable, in that, if there were insufficient bookings by customers at the hotel for the season in question, the amount paid by Med was carried forward to the next season. Of course, Med ran a risk of losing its money, but that fact does not undermine the notion that Med acted as an agent." (HMRC v. Secret Hotels2 Limited [2014] UKSC 16)
TAXPAYER RECEIVING SUPPLIES AS AGENT
- Can only apply where the goods or services provided by agent are identical to those received
"[51] It follows that two conditions must be satisfied in order for those provisions to be applicable: first, that there is an agency in performance of which the commission agent acts, on behalf of the principal, in the supply of goods and/or services and, second, that the supplies of goods and/or services acquired by the commission agent and the supplies of goods and/or services sold or transferred to the principal are identical.
...
[54] As regards the second condition, relating to the identical nature of the transactions at issue, it suffices to state that both Article 14(2)(c) and Article 28 of the VAT Directive provide that the goods and/or services supplied to the commission agent are to be transferred to the principal. Not only does this require, as is apparent from the Court’s case-law, that the transactions in question must be the same, but also that, where appropriate, the corresponding right of ownership must be transferred." (ITH Comercial C-734/19)
- Must be a transfer of ownership of goods from agent to principal
"[55] In a situation such as that at issue in the main proceedings, in which a taxable person acquires goods and services in its own name and on its own behalf, and not on behalf of another person, so as to be able to supply services adapted to the particular needs of a given client, the second condition identified in paragraph 48 of the present judgment is plainly not met since there is no transfer of the right of ownership between the alleged commission agent and the alleged principal." (ITH Comercial C-734/19)
- Not agent where T acquires goods/services in own name to be able to supply services adapted to needs of client
"[55] In a situation such as that at issue in the main proceedings, in which a taxable person acquires goods and services in its own name and on its own behalf, and not on behalf of another person, so as to be able to supply services adapted to the particular needs of a given client, the second condition identified in paragraph 48 of the present judgment is plainly not met since there is no transfer of the right of ownership between the alleged commission agent and the alleged principal." (ITH Comercial C-734/19)
- Not agent where T carries out construction project for client
"[56] In the light of all the foregoing considerations, the answer to parts (a) to (f) of the second question is that the VAT Directive, in particular Article 28 thereof, must be interpreted as meaning that, in the absence of a contract of agency without representation, the commission agent mechanism is not applicable where a taxable person carries out a construction project in accordance with the requirements and specifications of another person who is expected to rent that building" (ITH Comercial C-734/19)
Compare with (ET C-213/24)
EFFECT OF AGENCY
Acts of agent attributed to principal
Undisclosed agent deemed to receive and supply services
- Acts of agent attributed to principal
"[24] It is apparent from the contract of mandate concluded in the main proceedings, as described by the referring court, that the contractor’s activity is limited to carrying out the tasks listed in paragraph 20 of the present judgment in the name and on behalf of its principals, who remain the selling owners of the land at issue in all deeds of sale relating thereto.
[25] As is also apparent from that contract, the remuneration for the contractor’s activities, including that covering the costs incurred from third parties for the carrying-out of the tasks necessary for the performance of those activities, is admittedly dependent on the price obtained for the sale which the contractor alone will have negotiated. The amount of that remuneration was, in fact, set as representing the difference between the actual sale price of each plot and that stipulated in that contract. Accordingly, the contractor bears the economic risk linked to the mandate and to the carrying-out of the steps for marketing the plots provided for by that mandate. In doing so, as is highlighted by the referring court, that method of remuneration reduces the economic risk borne by the principals. However, the final economic risk, which would materialise in the absence of a sale, due to the failure to perform the contract of mandate or the lack of a buyer willing to purchase the plots of land, falls solely on the principals, subject to that contract providing otherwise, which it will be for the referring court to ascertain." (ET C-213/24)
- Two consecutive supplies deemed to take place
"[49] Next, Article 28 of the VAT Directive, which provides that where a taxable person acting in his or her own name but on behalf of another person takes part in a supply of services, he or she is to be deemed to have received and supplied those services himself or herself, creates the legal fiction of two identical supplies of services provided consecutively. Under that fiction, the operator, who takes part in the supply of services and who constitutes the commission agent, is considered to have, first, received the services in question from the operator on behalf of whom he or she acts, who constitutes the principal, before, second, himself or herself providing those services to the client (judgment of 4 May 2017, Commission v Luxembourg, C‑274/15, EU:C:2017:333, paragraphs 85 and 86 and the case-law cited)." (ITH Comercial C-734/19)
- If the supply in which the agent takes part is subject to VAT, both supplies are subject to VAT
"[87] Since Article 28 of Directive 2006/112 comes under Title IV of that directive, entitled ‘Taxable transactions’, the two supplies of services concerned fall within the scope of VAT. It follows that, if the supply of services in which an operator takes part is subject to VAT, the legal relationship between that operator and the operator on behalf of whom it acts is also subject to VAT (see, by analogy, judgment of 14 July 2011, Henfling and Others, C‑464/10, EU:C:2011:489, paragraph 36)." (Commission v. Luxembourg C-274/15)
Agent deemed to receive and supply goods
- Legal fiction of two identical supplies
"[50] Finally, the Court has held that the same reasoning applies as regards the acquisition of goods pursuant to a contract under which commission is payable on purchase, under Article 14(2)(c) of the VAT Directive, which also comes under Title IV of that directive, entitled ‘Taxable transactions’. That provision thus creates the legal fiction of two identical supplies of goods made consecutively, which fall within the scope of VAT (judgment of 4 May 2017, Commission v Luxembourg, C‑274/15, EU:C:2017:333, paragraph 88)." (ITH Comercial C-734/19)
- If the supply in which the agent takes part is subject to VAT, both supplies are subject to VAT
"[87] Since Article 28 of Directive 2006/112 comes under Title IV of that directive, entitled ‘Taxable transactions’, the two supplies of services concerned fall within the scope of VAT. It follows that, if the supply of services in which an operator takes part is subject to VAT, the legal relationship between that operator and the operator on behalf of whom it acts is also subject to VAT (see, by analogy, judgment of 14 July 2011, Henfling and Others, C‑464/10, EU:C:2011:489, paragraph 36).
[88] The same reasoning applies as regards the acquisition of goods pursuant to a contract under which commission is payable on purchase, under Article 14(2)(c) of Directive 2006/112, which also comes under Title IV of that directive. That provision thus creates the legal fiction of two identical supplies of goods made consecutively, which fall within the scope of VAT.
[89] Consequently, where the member of an IGP acquires, in his name but on behalf of the IGP, goods under Article 14(2)(c) of Directive 2006/112, or services under Article 28 thereof, the reimbursement by the group of the expenses relating thereto is a transaction which falls within the scope of VAT." (Commission v. Luxembourg C-274/15)