The question of who is the supplier and who is the agent in a multi-party arrangement, as well as the VAT consequences, will shortly be resolved by the Supreme Court. The decision will affect operators in the online travel industry, as well as a wide range of suppliers of other online services to consumers.
At the end of January, the Supreme Court heard the appeal of the SecretHotels2 Group (the taxpayer) against the 2012 decision of the Court of Appeal, which ruled that travel "agents" cannot simply rely on their contractual terms stating they are agents, and instead must consider whether their behavior supports an agency analysis. If not, such operators will be regarded as acting in their own name and will therefore fall within the Tour Operators' Margin Scheme (TOMS) for UK VAT purposes.
The taxpayer operated a website through which customers could book hotel accommodation. The terms and conditions provided to customers stated that the taxpayer acted as an agent for the hotels and that the customer was contracting with the hotel for the provision of accommodation. Hotel providers were referred to as "Principal" and the taxpayer as "the Agent.” The UK tax authorities (HM Revenue & Customs) did not accept this analysis, and argued that in reality, the taxpayer acted as principal. The Court of Appeal agreed; the taxpayer was not simply supplying agency services to hotels, but looking at the whole "package" of services, it itself was supplying the holiday.
The position following the Court of Appeal's decision is that the identity of a supplier for VAT purposes (and the correct interpretation of a contract) requires an analysis of all the facts. Where a package of services is provided, it will not be possible to examine each supply contract in isolation, to rely on the descriptions applied to the parties, nor to define the supply in a specific way in order to secure a particular VAT treatment. The substance of the transaction is of critical importance in determining who is supplying what and to whom.
The Supreme Court's decision, which should be available in the spring, will be of great significance to a wide range of suppliers of online services and will be awaited with interest.