Disclosed and Undisclosed Agent (VAT intermediary)

In retail, using an intermediary to sell or buy is a common practice. There are two types of intermediaries: opaque or transparent. Beyond the strategic aspect of this choice, let's see more precisely how they work, the advantages and disadvantages of these two different commercial players and the impact on VAT for your business.

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Why use an intermediary?

Before going further on the implications of intermediaries on VAT management, let's focus on the definition of this rather particular role.

It can be defined as a person or a company that acts as a “bridge” between two other parties in a commercial transaction. In other words, the intermediary facilitates the sale of goods or services between a seller or supplier (commentator) and a buyer (the customer).

Who are commercial intermediaries?

There are several types of commercial intermediaries including:

• The commercial agent: it is an independent agent negotiating sales, purchase, rental contracts, etc. and who can carry out these transactions on behalf (mandate) of commercial companies, producers, etc.
• The commission agent: he acts on behalf of a principal in his own name, sale and purchases, and carries out the operation to its end while appearing as a party to the contract.
• The business provider: a bit between the commission agent and the broker, this person, also known as the intermediary, is paid by a commission but does not appear on the contract. Business brokerage is not a profession as such: there are no rules or laws governing the profession.
• The representative: intermediary who brings together the two parties (seller and buyer) on behalf of his client and within a strict framework (sales conditions, clause, negotiations, etc.). He is not an employee of the company like a salesperson is.
• The broker: he is also an intermediary between a supplier or client and a buyer, but he is completely independent. It is a business provider governed by laws and regulations, it is a real profession.

But what are the advantages of using a third party rather than conducting transactions directly?

The advantages of a Benefit Of intermediation

Access to a wider network

The strength of intermediaries is their network of contacts, customers or suppliers that the seller or the buyer does not have. They can thus facilitate transactions that would otherwise be difficult to carry out.

Expertise and market knowledge

Intermediaries are experts in their field of activity. They know the market, prices, trends and the best business partners well. They are able to see opportunities, avoid costly mistakes, in short, facilitate decision-making when selling or buying.

Saves valuable time

In the business world, knowing how to delegate is one of the levers of success. Looking for buyers or sellers by yourself can take a long time and mobilize a lot of resources (financial, human, etc.) The intermediation service, carried out by a professional who already has the connections and processes in place, considerably accelerates the transaction.

Risk reduction

The intermediary helps to verify the reliability of business partners, to optimize legal or financial aspects, and ultimately to ensure that the transaction goes smoothly.

Management of formalities

In most cases, intermediaries take care of administrative, contractual, or logistical aspects, which simplifies the process for the other parties involved.

Opaque or transparent: a difference in size

These somewhat particular trading partners can work under two types of different regimes: opaque or transparent.

Opaque intermediate

It does not appear clearly in the final transaction. The buyer does not always know that the intermediary exists, or does not know the details of the original purchase price from the supplier. The opaque intermediary charges VAT on the entire sale price. In fact, he resells the property as if he owned it. Example: if an intermediary buys a product at €50 excluding tax (excluding tax) and resells it at €100 excluding tax, he charges 20% VAT on the €100, i.e. €20 VAT. The end customer therefore pays €120 including VAT (all taxes included).

The intermediary collects the €20 VAT and pays it to the tax authorities. In addition, he recovers the VAT he paid during his initial purchase of €50 excluding VAT.

Transparent intermediary

The intermediation service is clearly identified and visible on the various documents. The buyer therefore knows its existence, he knows that his services will be reflected in the final price. In some transactions, he may even have access to the original purchase price. The gain or commission is then known. The intermediary only charges VAT on his commission or service, not on the full price of the good or service sold. Example: let's say that a seller sells a property for €100 excluding VAT and the transparent intermediary receives a 10% commission (i.e. €10 excluding VAT). The seller charges €120 including VAT (€100 excluding VAT + €20 VAT). The intermediary charges €10 excluding VAT to the seller, with 20% VAT on this commission, i.e. €2 VAT. The seller will therefore pay €12 including VAT (€10 excluding VAT + €2 VAT) to the intermediary. The transparent intermediary only collects VAT on its commission (€2 in this example) and pays it back to the tax authorities.

Of course, these sales examples do not take into account possible special cases such as VAT rates, regimes or exemptions. Neither the eventuality where one of the actors, principal, customer or intermediary is domiciled outside France. The way to manage VAT must therefore be at the center of questions when choosing an intermediary... But not only that.

Opaque or transparent: advantages and disadvantages

Transparent intermediary: clarity and trust

Using the services of transparent intermediaries means preferring clarity. All parties (purchaser and purchaser) know exactly how the transaction is structured, what are the costs involved, and how the intermediary is paid. These transactions promote trust between business partners.

A better understanding of costs

When dealing with a transparent intermediary, buyers and sellers understand how prices are set. In this way, misunderstandings or suspicions of abuse of position are avoided. Likewise, because the intermediary's commission or fees are clearly established, customers know exactly what services they are paying for.

Ethics and regulatory compliance

In some business sectors, transparency is not only preferable but also required by law to protect consumers or ensure fair competition. Choosing a transparent intermediary will thus help to remain in compliance with regulations. Finally, this regime is often perceived as more ethical and the professional is trustworthy, reputable and therefore attractive for economic actors.

The impact on VAT and prices

The transparent intermediary charges VAT only on the commission or service fees it receives, and not on the total price of the good or service sold. Businesses that need to keep prices as low as possible for the final purchaser will therefore opt for transparent intermediaries for their commercial transactions: VAT does not apply to the entire transaction price.

Transparency ultimately has many advantages... But then, why turn to an opaque intermediary?

Opaque intermediary: “hidden” advantages

Opaque business transactions can be a winning strategic choice for businesses. Opting for this service allows you to:

• maximize margins by reselling products or services at a price higher than that paid, without the customer knowing the margin achieved;
• control the supply and distribution chain while protecting its business information from competition. These opaque transactions prevent customers or competitors from contacting suppliers directly;
• ensure price flexibility: the commercial company adjusts prices according to the market or the customer's needs without the customer knowing exactly the cost structure;
• consolidate services: in a single operation, it is possible to group several services or products under a single invoice, making the process easier for the customer, while hiding individual cost details.

The impact on VAT and prices

The opaque intermediary charges VAT on the entire selling price of the good or service to the end customer. The final price is therefore less competitive. The VAT collected is higher because the base (the amount on which VAT is calculated) is larger. The operation then ensures greater revenues for the State. The intermediary, on the other hand, has the possibility of maximizing its margins while maintaining the confidentiality of costs. The service of opaque intermediation is preferable in a competitive environment, it allows the company to maintain greater discretion over its costs but also its operation.

Conclusion

The choice between an opaque or transparent intermediary actually depends on the company's priorities: maximizing margins and protecting information (opaque) or maintaining competitive prices and promoting transparency (transparent). For VAT management, the transparent intermediary can offer an advantage in terms of price competitiveness, while the opaque one may be more profitable for the company in certain situations.

Need help?

The choice of intermediation service is strategic. A thorough and independent analysis of needs, of services, of their conditions, of their conditions, of competition, of VAT rules, prices, etc. may be welcome in order to decide on the best regime, whether opaque or transparent.

To see more clearly, enlisting the services of a tax lawyer, who is also an expert in VAT, is a plus for business managers or intermediaries themselves thinking about the best regime to optimize their income while consolidating their business.

Make an appointment with our two lawyers to get a clearer idea of the advantages and disadvantages of using an opaque or transparent intermediary.