Intermediaries, also popularly known
as middlemen, are extremely crucial for facilitating movement of service and
goods from the source of origin to its destination. Intermediaries are
essential for smooth conduct and growth of any business. In the era of
globalization, the reach and extent of intermediaries have extended across the
globe and thus discharge an important function of matching the demand and
supply of service as well as goods. They take the load off the manufacturers as
well as the service providers by ensuring market for their goods and services.
Generally, an “intermediary” is a
person who arranges or facilitates supply of goods and/or provision of service
between two persons, without material alteration or further processing of such
goods or service. Thus, an intermediary is involved in two activities, the
first being facilitating supply of goods or provision of service from the
principal to the customer of the intermediary. In discharge of such a service
ensuring that the goods or service originating from the principal is delivered
to his customer, the intermediary performs or provides the second activity
which is a service to his principal in the nature of marketing of the
principal’s goods or services, for which a fee or commission is usually charged
by the intermediary from the principal.
However, Rule 9 of the Place of
Provision of Service rules which states that the place of provision of
intermediary services shall be the location of the service provider, defines
intermediary as a broker or an agent or any other person who arranges or
facilitates a provision of a main service between two or more persons, but does
not include a person who provides the main service on his account. This
definition excludes intermediaries like commission agent, buying or selling
agent or a stockbroker engaged in selling of goods on behalf of principal from
its scope. Also excluded in the definition of intermediary in these rules is a
person who provides the main service on own account of the principal. Hence,
any person in addition to arranging or facilitating provision of service from the
principal to his customers, also undertakes the actual performance of service
on behalf of the principal, such a person would be excluded from the scope of
the definition of intermediary in these rules.
In order to determine whether a
person is acting as an intermediary or not, the following factors need to be
considered: Nature and value: An intermediary cannot alter the nature or value
of the service, the supply of which he facilitates on behalf of his principal
to his customers, although the principal may authorize the intermediary to
negotiate a different price. Also, the principal must know the exact value at
which the service is supplied or obtained on his behalf, and any discounts that
the intermediary obtains must be passed back to the principal. Separation of
value: The value of an intermediary’s service to the principal for which he is
receiving consideration in the form of “commission” for having arranged or facilitated
provision of principal’s service to his customers, is invariably identifiable
from the main supply of service (Principal’s service) that he is so arranging
or facilitating to his customers. It can be based on an agreed percentage of
the sale or purchase price. Identity and title: The service provided by the
intermediary on behalf of the principal is clearly identifiable.
Since the definition of intermediary
excludes commission agent for buying or selling of goods from its scope, such
services provided by the agent would be export of service since the place of
provision of such service would be outside the taxable territory.
Intermediary Service Provider in Canada
