Influencer marketing at an (unforeseen and considerable) cost

A recent decision by a Roman court has brought to light important considerations for businesses using influencer marketing. The court's ruling has established that influencers who promote products online and are compensated based on sales can be classified as commercial agents. Since the decision is based on the (national implementation of) the EU Commercial Agency Directive, it has an impact on all influencer contracts subject to the law of an EU Member State. The qualification of an influencer as a commercial agent could have considerable financial repercussions on the companies using influencer marketing. Furthermore, the qualification as an agent could create a risk of a taxable presence, a so-called permanent establishment, or trigger tax reporting obligations in the hands of the instructing (foreign) company. 

In a case brought before a Roman court, a company engaging in online sales for dietary supplements was scrutinized for using influencers to promote its products. The company had entered into commercial contracts with various influencers, who were compensated based on the sales generated through their promotional activities on social media platforms (e.g. Facebook, Instagram, influencer website).

During an inspection, it was established that the nature of these contracts and the activities performed by the influencers could be classified as a commercial agency relation. In accordance with the Italian Civil Code (which is based on the EU Directive), a commercial agent is defined as someone who promotes sales on behalf of a company in a continuous and stable manner, for remuneration and within a specific area.

The company argued that the influencers were independent contractors, not commercial agents, and that their role was limited to promoting products on social media. However, the court found that the influencers' activities were stable and continuous, and that they were compensated based on the sales they generated (and captured by the use of personalized discount codes). 

The court's analysis focused on several key aspects:

• The ‘stable and continuous’ basis of the influencers' promotional activities;
• The compensation scheme, which was based on the sales generated through the influencers' efforts;
• The use of personalized influencer discount codes to track sales attributed to the influencers and determine their remuneration.

Ultimately, the court concluded that the influencers should be classified as commercial agents. As a result, the company was subject to the corresponding legislation - with penalties and indemnities in case of non-compliance.

"Influencers can be classified as commercial agents. As a result, companies using influencer marketing are subject to the applicable commercial agency legislation, including the far reaching obligations and (termination) indemnities."

This decision underscores the importance of correctly classifying contractual relationships and the potential legal, tax and financial consequences of misclassification. Companies using influencers for marketing purposes should ensure that their contracts and practices comply with relevant commercial and labor laws. One should also bear in mind the potential existence of a (taxable) permanent establishment, both in the light of double tax treaties and respective domestic law, in case the influencer could be qualified as a permanent establishment in the hands of a foreign instructing company. The latter must be analyzed in detail on a case-by-case basis.