Intermediary/trading for own account on online portals

Facts of the case

The claimant, a company based in a non-EU country, operated an internet portal through which customers could book hire cars from various German providers. In the terms and conditions (which customers were required to accept), the claimant stated that the hire agreement would be concluded on site between the customer and the relevant car hire company in accordance with the latter’s terms and conditions, and that the claimant acted as an intermediary. Following confirmation of the booking, the customer was required to pay the total price to the claimant immediately and received a voucher to present to the car hire company. The voucher also referred to the claimant’s role as a booking intermediary. The total price comprised the hire price plus a surcharge levied by the claimant. Upon collection of the car, the customer signed the standard hire agreement with the car hire company.

Under the framework agreement between the claimant and the car hire companies, the claimant was neither appointed as a representative of the car hire companies nor authorised to act on their behalf.

The claimant assumed that it was providing intermediary services with the place of supply in Germany, which are subject to the reverse-charge mechanism. The tax office, however, took the view that the claimant, acting for his own account, was renting out cars which it had previously hired itself from the respective car hire companies, and was therefore liable for VAT in Germany. In subsequent legal proceedings, the Finance Court also concluded that the claimant had operated her own car hire business, despite acting in another’s name. In doing so, she had sought to conceal the fact that she had in fact been acting on her own account.

Federal Fiscal Court (BFH) ruling

The Senate first pointed out that the nature of the relationships in terms of VAT are, in principle, determined by the contractual agreements, as these normally reflect the economic and commercial reality. The exception to this applies only in the case of purely artificial arrangements. Accordingly, the claimant had provided intermediary services, as she had taken the necessary steps to enable two parties to conclude a contract and had also presented herself as such to third parties. The fact that the claimant received the payment from the customer did not change this.

The claimant’s actions did not serve to conceal a service provided by itself. This would require that the substance, value and proceeds of the service had already been transferred to the purported intermediary prior to its provision. Contrary to the view of the Finance Court, a disguised transaction on the claimant’s own account did not arise from the fact that the claimant had undertaken to purchase certain minimum rental volumes and the car hire company had undertaken to provide certain rental volumes. This merely expressed a range of the intended rentals to be brokered by the claimant.

It is true that the business records referred to the car hire company as the provider of ‘pre-booked car hire services’. However, it cannot be concluded from this that the claimant (and not the customer) had made this pre-booking.

The voucher in question merely served as proof that the customer was authorised to hire the reserved vehicle (and not as evidence of a hire that had already taken place by the claimant), particularly as the customer still had to sign a standard hire agreement on site.

Analysis

For operators of platforms that act as intermediaries between customers and service providers, there is often uncertainty regarding the platform’s role. The Federal Fiscal Court (BFH) case demonstrates what a significant difference it can make whether one is an intermediary or a direct trader: in the first case, the platform is liable for VAT; in the latter, it is not. All parties involved would be well advised to clarify their roles from the outset and to secure them through written contractual agreements. In the BFH case, the car hire companies and the claimant had taken numerous measures to establish the platform’s position as an intermediary – this should, in fact, have been sufficient for the tax office.

The Federal Fiscal Court case took place in 2009. Nowadays, section 3 (11a) of the German Value Added Tax Act (UStG) would also need to be taken into account, which, under certain conditions, deems platforms to be acting in their own name – though only in the case of services provided electronically.