Ordering groceries or booking a taxi through a smartphone app has never been more convenient. But once the grocery order is delivered, his interesting VAT issues start to come up.
First and foremost, who will provide the food? Unlike the process when ordering a meal, the grocery shopping module did not identify the actual supplier. Only the product and its price were listed. Was the app owning company the actual supplier?
The VAT Act requires that the words ‘tax invoice’ clearly appear on the invoice.
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Clarification of FTA
The terms of service indicated that the app would function as a marketplace to match buyers seeking goods and services with third-party sales partners. Supply is made directly by third party reseller partners and not by the app owning company.
In the context of electronic commerce, the Federal Tax Administration has clarified that electronic marketplaces may operate as “public” or “private” agencies. Disclosed agents act in the name and on behalf of key suppliers. Customers know that they are dealing with a key supplier’s agent, whether or not they have direct communication with the key supplier.
The supply of goods will be treated as being made directly by the principal supplier. The principal will then remain responsible for complying with his VAT.
Private distributors act in their own names and customers have no knowledge that the distributor is acting on behalf of a major supplier, and cannot reasonably expect them to know. In such a case, for VAT purposes he has two supplies:
- From major suppliers to distributors, e.g. electronic marketplaces.and
- From the agency to the customer. The agent is liable to pay her VAT on the total price received from the customer.
Mobile app agency status
If the app-owning company does not disclose the actual supplier (of food items) at the time of ordering, a decision must be made to identify the nature of the agency. They can act as private agents and issue tax invoices for supplies to customers in their name.
By declaring itself as an agent/facilitator in the Terms of Service, the app-owning company considers itself to be the disclosed agent. This eliminates the need to issue tax invoices in their name. However, related questions remain.
Can a disclosed agency exist without disclosing the identity of key suppliers to customers? Probably not.
It is also necessary to distinguish between an agency and a continuous contract between the app-owning company and a third-party sales partner to sell/purchase goods.
Correct answers to questions like these can have a huge impact on your VAT compliance. A trade practice dispute in the European Court regarding a similar business model for an app-owning company (ride-hailing) ruled that the company should be considered a contractor rather than a mere agent.
By declaring itself as an agency in the Terms of Service, the app-owning company considers itself a disclosing agency.
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tax bill
Once the groceries are delivered, the app will usually email you the order details. In one such case, the end of the email included a statement that it was a “tax invoice” for the goods/services provided.
However, regarding that statement, the email was not classified as an invoice anywhere else. The VAT Act requires that the words ‘tax invoice’ clearly appear on the invoice.
A typical sentence at the end of an email may not meet these requirements. In addition to classifying emails as invoices, app-owning companies may need to clearly display “tax invoices.”
E-commerce marketplaces may also charge service fees from customers for the use of mobile apps. Ideally, the supplier of such service charges should not change based on the nature of the product ordered through the app, whether it be groceries or meals.
Successful VAT compliance requires the correct identification of suppliers for various supply elements.
As the region’s tax landscape changes, business operations teams must understand the importance of comprehensive tax compliance.
