Let me tell you the difference among commission, discount, rebate and kickback.

Commission, discount and rebate are commonplace in modern commercial practice. But do you understand their distinctions, and which are lawful or unlawful?

First, let us define each term and its applicable scenarios.

Commission, discount and rebate are all common promotional tools. Commission is consideration for intermediary services, generally paid to a middleman who facilitates a transaction. It qualifies as a service, issued with a positive-value invoice, and normally subject to a 6% VAT rate. In contrast, discounts and rebates usually arise between the two parties to a transaction and are tied to the underlying transaction, so their VAT rates follow those applicable to the transaction invoice. Discount refers to price concessions that reduce sales revenue. It is typically granted at the time of transaction, or after the transaction where the payee assumes liability and agrees to offer a discount, for example where goods have quality defects and the buyer accepts them with concessions, or where goods drop in price within the seller’s guaranteed price period. If the discount is granted at the time of sale, a positive-value invoice is issued, listing the original price on one line and the discounted negative amount on another. Pursuant to the Notice of the State Taxation Administration on the Issuance of Red-letter Special VAT Invoices for Discount and Allowance Transactions by Taxpayers (Guo Shui Han〔2006〕No.1279）， where a discount is granted after transaction completion, a red-letter invoice shall be issued. Rebate is generally paid after transaction completion and therefore also evidenced by a red-letter invoice. Lastly, where commission, discount or rebate is not truthfully recorded in the books and handled through off-book arrangements, it is commonly referred to as a kickback, which constitutes an act of commercial bribery.

With the development of online sales, new business models such as new media advertising placement and influencer live-streaming sales via platforms have created new types of promotional arrangements, making it sometimes difficult to immediately identify the parties and characterize the arrangement. We analyze platform models including Douyin’s Xingtu, Weibo’s Weitask, Tencent’s Tencent Mutual Selection Platform and Xiaohongshu’s Pugongying as examples.

The rules of these platforms generally deduct a percentage of platform service fees after an influencer completes a transaction through the platform. To enable such promotions and protect the rights and interests of merchants and influencers to a certain extent, platform rules mandate that the entire process —order placement, order acceptance, content delivery and platform settlement — must be conducted through the platform system. Platforms usually maintain publicly available or transparently disclosed quotation systems for partners, but do not allow direct modification of order prices within the system to realize instant discounts.

This transaction structure creates a problem, that is, a company may have reached an agreement with an influencer before the transaction, yet any promotional activity must be processed via the platform system. The discounts or rebates agreed privately cannot be adjusted within the system. Meanwhile, an influencer’s order volume processed through the platform affects the platform’s traffic allocation for the influencer. Therefore, influencers often prefer merchants to place higher-value orders through the platform, and then pay separate discounts or rebates to the merchant outside the platform. What legal relationship governs merchants and influencers under such arrangements?

In case (2023) Hu 0104 Min Chu No.855, the parties agreed that Company X would place orders through Douyin’s Xingtu and Xiaohongshu’s Pugongying platforms, and Company F would perform the promotion upon accepting the orders. The parties also agreed that Company F would grant rebates to Company X for orders placed by Company X on the platforms. The court ultimately upheld Company X’s claim for rebates. Notably, the cause of action in this case was a service contract dispute, not an intermediary service contract dispute. This shows that courts may recognize discounts or rebates as arrangements between contracting parties even where the underlying transaction is conducted via a third-party platform. In view of this case, if parties purchase property through an agent but conclude the transaction themselves, provided they do not bypass the agent and the agent receives commission (calculated based on the transaction amount before discount or rebate), there should be no legal risk.

However, when parties who are not familiar with the legal nature of these three concepts, they may make the payments under the title of commission. This is an incorrect practice. The business party itself is the counterparty to the transaction, while the platform acts as the intermediary. Therefore, such payment shall not be commission.

Finally, it should be noted that under Article 8 of the Anti-Unfair Competition Law, commissions, discounts and rebates must all be truthfully recorded in the accounting books by both parties; failure to do so constitutes commercial bribery. In practice, some business parties and influencers transfer funds under the guise of commission, information service fees, consulting fees, promotion fees, sponsorship fees and etc.. They fabricate service arrangements and false transaction backgrounds to create a veneer of compliance. Even with formal documents such as contracts, invoices and bank transfers through corporate accounts, such conduct may still be deemed invoice-related violations and even commercial bribery.

It is recommended that enterprises, when confronted with new business models, first properly distinguish commission, discount and rebate. Regardless of the model adopted, ensure all amounts are truthfully recorded and invoices are issued in accordance with law.