A commercial agent mediates sales on behalf of a principal; the principal concludes the contract with the customer themselves. A distributor buys in their own name and sells for their own account and risk. The difference seems small, but it determines who bears commercial risk, who is liable for product defects, and who is entitled to compensation for the customer upon termination. In our practice, the wrong choice structurally leads to unexpected compensation claims.
What is the legal problem?
The choice between agency and distribution has fundamental consequences. An agency agreement falls under mandatory European law; distribution does not. Upon termination of agency, compensation for the customer arises quite easily. In the case of agents, a permanent establishment for tax purposes may unintentionally arise in the country of the agent. Anyone who arranges distribution but actually functions as an agency may be reclassified, with all the consequences that entails.
What does the law say?
For commercial agents within the EU, Directive 86/653/EEC applies, implemented in the Netherlands in Article 7:428 BW et seq. Article 7:442 BW regulates compensation for customers: a maximum of the average annual commission of the last five years. The notice period increases with duration: a minimum of one month in the first year to three months from the fourth year (Article 7:437 BW). Many of these provisions are mandatory law.
There is no comparable European directive for distributors. Freedom of contract is the guiding principle. The Belgian Law of 1961, German case law (BGH 17 July 1986, NJW 1986, 2932), and GCC countries do have protective rules for distributors.
What risks do companies face?
Customer compensation for agents can amount to an annual turnover in commission — often hundreds of thousands of euros. With distribution, you face price, inventory, and potentially product liability risks. An incorrectly structured model can lead to a permanent establishment for tax purposes abroad (Article 5 of the OECD Model Convention). Reclassification of a distributor as an agent leads to retroactive commission claims and customer compensation.
Practical example from our practice
We advised a Dutch supplier who formally had a distribution agreement with a Belgian partner. In practice, the partner purchased only on order, the manufacturer invoiced customers directly, and the manufacturer determined the price. Upon termination, the Belgian partner demanded compensation from customers under reclassification as an agent. We successfully defended the case using explicit contractual structuring and adjusted working practices. Under a well-structured contract providing for economic independence, claims remained limited to 35,000 euros.
What can you do?
Determine in advance which model suits your margins and risk appetite. Ensure that the legal structure is also adhered to in practice. For agency: establish commission, territory, and notice periods, and where possible, structure compensation contractually. For distribution: regulate exclusivity, targets, exit clauses, and economic independence. Have the structure for each country reviewed by an international commercial law attorney. See also our article on international agency disputes.