DST31200 - Identifying the Relevant User in Long Value Chains

In some industries, there may be multiple intermediaries or online marketplaces involved in the provision of a service to the end consumer. This can lead to challenges understanding who the online service’s users are.

The specific facts and circumstances of each arrangement will need to be considered. In general, though, HMRC’s view is where there are back-to-back marketplaces intermediating the transfer of a good or service, the users will usually still be the persons selling the goods/services and purchasing the goods and services. If a marketplace contracts with another marketplace, it will need to look through that and identify the user(s) who is providing or purchasing the things being transacted on its marketplace

This view is informed by the following principles.

  • A user must use the online service in some capacity
  • An online service can have more than two users
  • Users on the supply side of the marketplace must offer or provide services to other users. Only providing services to the provider is an indicator they are not a user of the marketplace.
  • Online marketplaces should identify the particular things it is facilitating the sale of. If things are offered for sale on the online marketplace, the provider of the particular thing for sale will normally be a user.
Example

A UK holidaymaker buys flights to Avalon from an online travel agent (OTA) provided by Group CDE.

The OTA uses group DEF’s global distribution system (GDS) to lookup available flights and accommodation. Group DEF has entered into multiple supply agreements with airlines which allows it to provide real time flight information to CDE and to other OTAs and high street travel agents.

The UK holidaymaker selects and purchases their preferred flights, provided by Avalonian Airlines, on the OTA’s website. The booking is made through the GDS and Group CDE receives a commission fee from DEF. DEF passes the remainder of the purchase price of the flight through to Avalonian Airlines, after deducting its own commission fee for arranging the sale.

Both the OTA and the GDS are assumed to satisfy the online marketplace definition in this example. The OTA and GDS will consequently need to calculate their UK digital services revenues. To do this, it is necessary to understand who their users are.

For the OTA, the holidaymaker booking the flights is clearly a user of the online service. The more difficult question is who the user on the supply side is; is it the GDS, the airline or both?

The OTA is facilitating the sale of flights and the flights are offered for sale on its website. It therefore seems likely Avalonian Airlines is using the OTA to boost its sales and is a user of the OTA’s marketplace.

It may be the case DEF is also a user. Group CDE will need to consider the substance of its relationship with DEF. It appears DEF is providing services which enable CDE to offer flights to its customer traffic. It does not appear to be selling services to holidaymakers. This may indicate it is not using CDE’s marketplace to sell its services, rather it is an enabler of CDE’s marketplace. This is not clear cut however and the nature of the arrangements between CDE and DEF needs to be carefully reviewed.

As for the GDS, its online service facilitates the sale of flights to customers. As the airlines have entered into an agreement with DEF, it is clear Avalonian Airlines are using DEF’s services and are a user of its marketplace. In this case, the more difficult question is on the demand side. Is the user the holiday maker, CDE or both?

The first condition in the marketplace definition refers to enabling users to sell particular things to other users. It seeks to identify who the particular things are being offered or sold to. In this case, the flights are being offered to the holidaymaker through the GDS hosted on CDE’s website. The holidaymaker purchases the flights through the GDS. They consequently appear to be using the online service.

As explained above, it seems likely that CDE is a customer of DEF. The airline does not appear to be providing a service to CDE. Similarly, CDE does not appear to be using DEF to procure services from users. Rather it is looking to DEF to provide services which facilitate its own marketplace business. It is less likely to be considered a user.