Agency Business

The agency business transactional model is a hybrid between the direct business and the merchandize business transactional model. It brings most of the benefits of merchandize business along with the significant cost advantages of direct business. While internal agency business transactions are under scrutiny of the OECD BEPS guideline, external agents are still permissible. The price to pay in that case is a reduced control over market access and customer relationships. Agents (defined as either principal-controlled or independent local companies, their employees, or individuals) are compensated by a commission to act as messengers of the principal. Furthermore, they build and manage local relationships, monitor the transactions, and observe market developments. Beyond this, they might also become involved in negotiations, closing, and eventually even signing an agreement with the customer. All these activities reach far beyond the role of a messenger and – in case of internal agents – practically create a permanent establishment (PE). This fact has been explicitly confirmed by the OECD BEPS guidelines with the result that the agency business as transactional model using internal agents becomes increasingly unattractive for most companies. The chapter starts with a definition showing the several variances of the agency business transactional model including the role of crossborder agents. The implications for the activities and tasks of the functions of the vendor’s and customer’s enterprise in their respective legal entities are discussed in detail, especially with regard to the huge burden on leadership, HR and multi-taxation of personal income taxation of business travelers.