Factors to determine principal agency relationship

An arrangement with supplier and customer for transshipment services with mirror contracts with each

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We have a contract with supplier and another contract with the customer such that on the customer side contract we are the service providers and on supplier side we are obtaining the services from the supplier. The customer as per the agreement sends us the request for the services which we approve and then forward those to our supplier for their approval then services are initiated and rendered by the workforce of the supplier. Incase the customer defualts to pay for the services it will be us bearing the loss not the the supplier. 
Would this arrangement brings us in a territory of an agent capacity? or we would be considered as principal?

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By David Ex
03rd Jun 2023 12:16

akashvalecha wrote:

Would this arrangement brings us in a territory of an agent capacity? or we would be considered as principal?

I would strongly advise against taking legal advice from an anonymous internet accounting forum.

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By DKB-Sheffield
03rd Jun 2023 17:58

I agree with David Ex

The tax/ accounting treatment will generally follow the legal contracts. You may benefit from having both your tax AND legal advisers involved in any discussions. Your tax adviser can set out the relative outcome of the proposed contract prepared by your laywer - before it is agreed.

FWIW - and this is certainly NOT an answer, or advice - my gut (based on your OP) is that you seem to be contracting with both parties, not facilitating as an agent. However, my mind says "read the bleedin' contract" before passing comment! My 'gut' instinct may be proved right once my mind has engaged - but, without sight of the contracts... it's an unjustified guess!

Incidentally, I'm not saying my mind is always right. The other week my mind was happily assured that 'best before dates are a marketing ploy', yet my gut disagreed entirely!

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Replying to DKB-Sheffield:
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By Hugo Fair
03rd Jun 2023 18:55

Unlike OP, that's verging on 'too much information' (albeit it's a memorable punchline)! :=)

More seriously, and really a point for OP, the only use of 'gut reactions' (other than in fight or flight situations) is to help determine the likely best place to *start* your research (or to focus on getting the most appropriate professional assistance).
From thereon, it's always a mater of trying to follow/apply the facts - which is one reason for using a professional before you sink in the quagmire.

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