Commissionaire arrangements are a creature of European civil
law.Two parties, the principal and the
commissionaire, agree that the commissionaire will act as undisclosed agent in
sale of the principal's goods to customers.The principal is bound by actions of the commissionaire, but is only
liable to the commissionaire for breach.The customer may or may not be informed of the arrangement, but in
either case has recourse only to the commissionaire for breach.
European civil law features limiting the liability of the
principal also have the effect of limiting taxability of the principal.A commissionaire's activities, place of
business and permanent establishment are not attributed to the principal under
tax laws of certain countries.This can
permit a principal from having income tax exposure in a civil law country if it
has no other permanent establishment in the country.
Stripped Distributors
Under U.S., UK, Canadian, and other common law, a
commissionaire arrangement creates agency, and the customer would have recourse
against the principal.Thus, in the
U.S., commissionaire arrangements are the same as agency arrangements.For U.S. tax purposes, the commissionaire's
activities, and potentially its place of business and permanent establishment,
are attributed to the principal.A
foreign principal with a commissionaire operating in the U.S. has exposure to
U.S. tax if the commissionaire does.
For U.S. and other common law countries, a stripped
distributor or limited risk distributor can reduce taxes for the distributor
and limit tax exposure for the principal.Often such stripped distributors operate in the same manner as full risk
distributors, but have agreements shifting risks (such as inventory and
receivables).
Commissionaire structures have survived attack by French tax
authorities.In Zimmer, Ltd., the Supreme Administrative Court (the top court for
tax matters in France) held on March 31, 2010, that a commissionaire arrangement
did not create a permanent establishment for a UK company.The ruling upheld the priority of civil law
relationships over facts and circumstances.
Call Steve Fox to help you significantly reduce tax
exposures in European civil law countries with commissionaire agreements and in
the U.S. with stripped distributors.
It's your business: get personal. Call Steve Fox at 1(973) 610-5669 or email steve @ sfoxcpa .com
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