How merchant of record sales work in your accounts: a guide for finance teams

A merchant of record changes who your studio sells to. On a web shop run through a reseller MoR, the player buys from the MoR, and the MoR buys the item from you. That one fact decides which invoice you keep, whether you charge VAT, and which revenue figure goes in your accounts. This page follows one sale through the books, from the player’s card payment to your month-end close. It is general guidance, not advice: where a rule depends on your facts, confirm it with your adviser.

Who sells what to whom

Under the reseller model used by FastSpring, Paddle, Lemon Squeezy and Xsolla, among others, there are two sales:

1. The player buys the item from the MoR. The MoR is the legal seller, its name is on the card statement, its checkout terms govern the sale, it collects consumer VAT or sales tax, and it faces the chargeback.
2. The MoR buys the item from you, at your price less its margin or fee. This is a business-to-business sale, and it is the only sale you make.

FastSpring puts it in one line: as the MoR it “purchases products and services from you” and “resells them to the end customer”. Paddle’s help center says that when a player buys through Paddle, “we act as the seller to them.”

“Merchant of record” is an industry term. Visa’s rulebook of 18 April 2026 does not use it; Visa’s word for the seller is “Merchant”. Tax law reaches the same place by its own route. In the EU, Implementing Regulation 282/2011 Art 9a presumes that a platform taking part in the supply of an electronic service acts in its own name, so it is treated as the seller. In the UK, VATA 1994 s.47(4) treats an agent acting in its own name as both buying and supplying the service. A payment service provider (PSP) that only processes payments is carved out of the EU rule by Art 9a(3), which is why a PSP leaves you as the seller.

The rest of this page covers the MoR column. For the case for each model, see merchant of record vs payment service provider.

The documents you get, and the invoice you must not issue

Because the MoR is your customer, it holds the purchase side of your sale. Most MoRs therefore write your sales invoice for you. Paddle and Lemon Squeezy call it a reverse invoice; some UK MoRs call it a recipient-created invoice. The generic VAT term is self-billing.

Self-billing has conditions. Under VAT Directive Art 224, a customer may draw up invoices for its supplier only where there is a prior agreement between the two and a procedure for accepting each invoice, and Art 226(10a) requires the words “Self-billing” on the invoice. In the UK, VAT Notice 700/62 requires a written self-billing agreement with a start and end date, under which you agree not to raise VAT invoices for the supplies it covers. Your MoR contract or its terms usually contain that agreement. Find the clause and check the dates.

Gross or net: the question the standards ask

Your revenue line depends on whether you act as principal or agent for the item the player receives. IFRS 15 paragraphs B34 to B38 and ASC 606-10-55-36 to 55-40 set the test. The FASB and the IASB wrote the same amendments, so the two frameworks agree. The core rule:

A principal reports the gross amount of consideration. An agent reports only its fee or commission. For a studio selling through an MoR, that gives two possible readings.

MoR as principal (you report net). The MoR is your customer. Your revenue is what the MoR owes you. Its margin never enters your transaction price, or, if the contract is framed as the MoR charging you a fee, IFRS 15 paragraph 70 treats a payment to a customer as a reduction of revenue unless it buys a distinct service.

You as principal (you report gross). The player is your customer and the MoR is your agent. Revenue is the player price excluding tax, and the MoR’s fee goes in cost of revenue or operating costs.

The standards list three indicators of control. Here they are applied to a web shop:

Two further facts often weigh in: who carries the loss on a chargeback (some MoRs absorb it, others deduct disputed amounts from your payout), and who owns the player relationship. The standards say the indicators carry different weight depending on the item and the contract terms (B37A), so no single row decides it.

MoRs do not agree on the answer. Paddle’s help center takes the gross view:

At least one UK reseller MoR tells sellers the opposite: their income is the price the MoR pays them, not the players’ spend (see the disclosed example in the VAT section below). FastSpring, Lemon Squeezy and Xsolla state no position in the documents we reviewed. None of these views binds your auditor. Each MoR is describing its own contract, and your contract may differ from its standard terms.

Listed companies reach different answers on the same framework. Electronic Arts reports its console storefront sales (Sony and Microsoft) net and its mobile store sales gross:

EA’s filing names pricing discretion and title risk before transfer among the indicators it weighs. If a studio of EA’s size lands on both sides depending on the storefront contract, expect your web shop answer to depend on your MoR contract too.

An illustrative sale, both ways

A player in Italy buys a $10.00 item. The MoR adds 22% Italian VAT, so the player pays $12.20. Assume the MoR keeps 5% and ignore processing charges and currency. The numbers are illustrative.

Cash and gross profit are the same either way. Revenue, gross margin percentage and any metric built on revenue differ. The VAT never reaches your revenue: IFRS 15 paragraph 47 excludes amounts collected for third parties, and US GAAP lets you elect to exclude sales taxes under ASC 606-10-32-2A. What the choice does to your P&L at scale is on net revenue vs gross margin.

Write a principal-versus-agent memo for each MoR contract, agree it with your auditor before your first quarter-end on the web shop, and disclose the judgment in your accounts. Revisit it when the contract changes, for example if the MoR gains the right to discount your items.

VAT on your sale to the MoR, by where you are

Your supply to the MoR is a business-to-business sale of an electronically supplied service. Its place of supply is where the MoR is established: VAT Directive Art 44 in the EU, VATA 1994 s.7A(2)(a) in the UK. So the VAT on your invoice depends on two addresses, yours and your MoR’s contracting entity.

Two cautions. First, check which entity you contract with. Paddle, for example, contracts through Paddle.com Market Ltd in the UK or Paddle Payments Ltd in Ireland “depending on where you’re based”, so two studios on the same platform can land in different rows. Second, check how your MoR handles UK VAT-registered sellers. Paddle’s help page on payouts says “no tax is charged to Paddle” without separating out UK sellers; if you are one, ask the MoR in writing how UK VAT on your supply is invoiced.

An EU studio that charges no VAT on these sales can generally still recover VAT on the costs of making them. Confirm the recovery position with your adviser if your sales are mixed.

US forms, withholding and platform reporting

Tax forms. Expect your MoR to ask for a W-9 if you are a US person or a W-8 if you are not. Xsolla requires one from every partner, and Lemon Squeezy says payouts “may be blocked or paused” without it. A non-US studio uses the W-8BEN-E to claim treaty benefits where they apply.

Form 1099-K. The One Big Beautiful Bill restored the federal threshold retroactively. The IRS confirmed in October 2025 that third party settlement organizations

US-based MoRs issue them on that basis. FastSpring files through FS Intermediate Holdings and notes lower thresholds in eight states and DC. Lemon Squeezy files through Stripe Express. A UK-based MoR that buys from you as a vendor may send nothing. We have not found a general rule on foreign MoRs; ask yours what it files and under which entity. Whatever arrives, the 1099-K figure will not match your revenue. Lemon Squeezy warns that its form includes fees, VAT, affiliate commissions and refunded amounts, and FastSpring’s adjusts for discounts and taxes but not for refunds or fees. File it with your tax papers and reconcile it once a year.

Withholding. US withholding on payments to a foreign studio depends on how the payment is characterized: a sale of a copyrighted article, a license of a copyright right, or a service, under Treasury Regulation §1.861-18, which now covers digital content. FastSpring withholds US tax on “downloadable subscription software” sold by foreign sellers from withholding countries, treating it as royalty income. It says most digital goods do not qualify and its criteria exclude browser-based games. Ask each MoR how it characterizes your product, and have a US tax adviser confirm the position before you assume no withholding applies.

DAC7. The EU’s platform reporting rules (Directive 2021/514) cover rental of property, personal services, rental of transport and “the sale of Goods”, and define goods as “any tangible property”. On that wording, sales of digital game content through an MoR appear to fall outside DAC7. We have not checked the UK’s equivalent regulations; confirm both with your adviser.

Related-party MoRs. If the reseller is your own group company, the margin it keeps is a transfer-pricing question. Everything above assumes a third-party MoR.

Why the payout never matches the month

Three things separate the sales in a month from the cash that lands in it: settlement holds, payout schedules and adjustments. Published terms from three MoRs:

FastSpring says outright that the total on your monthly statement “will not match a single bank deposit”, and tells sellers on the twice-monthly schedule to combine the month-end payout with the one on the 15th of the following month.

Refunds and chargebacks arrive later than the sale and in a different period. FastSpring withdraws disputed funds from your payout as soon as a chargeback is raised, says the process can take 60 to 75 days, and warns against issuing a manual refund once a chargeback has started. Paddle classes refunds, chargebacks and chargeback reversals as adjustments and suggests booking them as a negative line in the period they occur. Some MoR contracts also let the MoR hold back a reserve against future chargebacks; read yours for the release terms. Who bears the loss on a lost chargeback is covered on chargebacks and fraud, and the fees behind each line on hidden fees.

Month-end close checklist

1. Pull the MoR’s transaction-level export for the calendar month, not only the payout report. Split it into gross sales, tax collected, MoR fees, refunds, chargebacks, chargeback reversals and other adjustments.
2. Tie the self-billed invoices to the export. They are your sales invoices for VAT and audit. Check the self-billing agreement is signed and in date.
3. Book revenue on the basis your principal-versus-agent memo sets: the amount owed by the MoR (net) or player price excluding tax with the fee in cost of revenue (gross). Leave the consumer tax out in both cases.
4. Book a receivable from the MoR for sales earned but not yet settled, including the 13 to 14 day settlement hold and any first-payout hold. Clear it against bank receipts using the MoR’s payout-to-statement mapping.
5. Book any reserve or deposit the MoR holds as a separate receivable, with its release date.
6. Record currency effects in two lines: conversion fees charged by the MoR, and rate movements between the sale date and the payout.
7. Accrue expected refunds and chargebacks under the variable-consideration rules (IFRS 15 paragraphs 50 to 58) if they are material. A refund window that crosses month-end is the usual cause.
8. If you are UK VAT-registered and your MoR is in the UK, check that the output VAT on its self-billed invoices is in the VAT return for the period the invoices were issued, and match it to the VAT the MoR paid you.
9. Keep W-8, W-9 and 1099-K paperwork with your tax files, not your revenue workings. Reconcile the 1099-K to your gross sales once a year.
10. Re-read the principal-versus-agent memo whenever the MoR contract changes, especially clauses on pricing, refunds and chargebacks.

If you have not yet chosen an MoR, put three of these into the RFP: the contracting entity, a sample self-billed invoice and a sample monthly export. Choosing a provider has the rest of the list.