Summary of Clarification on advertising Services provided to Foreign Clients.
The Government has issued clarification on advertising services provided to foreign clients through Circular No 230/24/2024- GST Dated 10-09-2024. The circular gives clarity regarding advertising services provided by indian company to foreign clients. Some authorities are treating these services as if they are provided in india, which means they are not allowing these comapanies to claim export benefits. To remove the confusion and make sure the law is applied across different regions, the Central Government is issuing clarification.
What is Issue ?
A Foreign Company hires an advertising agency in india to handle everything related to promoting its product and services. The agency takes care of everything including
- Planning where and how to advertise (Media Planning)
- Deciding how much to spend on the advertisement (Investment Planning)
- Creating and designing actual ads (Content Creation)
- Developing strategies to reach the most customers
- Finding the right places to show the ads (Media owners like TV Channels, websites , Newspapers)
- Negotiating with these media owners to get space for the ads
- Making sure the ads are displayed, broadcasted or printed properly.
- Monitoring the Success of the ad campaign.
The Foreign company outsources all aspects of advertisement to the Indian agency, which provides a Complete service from start to finish. The Media owners send an invoice to the indian advertising agency for cost of advertising space. The advertising agency pay these costs and then the advertising agency raises the invoice to foreign company,foreign company will reimburse the same in foreign currency to the advertising agency. Now based on the above there are few questions for which this circular has been issued.
Key-Questions of the Circular
- Whether the advertising company can be considered as an “intermediary”between the foreign client and the media owners in terms of section 2(13) of Integrated Goods and Services Tax Act, 2017 (herein after referred to as the “IGST Act”), thereby resulting in determination of place of supply under section 13(8)(b) of the IGST Act?
- Whether the representative of foreign client in India or the target audience of the advertisement in India can be considered as the recipient of the services being supplied by the advertising company under section 2(93) of CGST Act?
- Whether the advertising services provided by the advertising companies to foreign clients can be considered as performance-based services as per section 13(3)of the IGST Act?
Q.1 Whether the advertising company can be considered as an “intermediary”between the foreign client and the media owners in terms of section 2(13) of Integrated Goods and Services Tax Act, 2017 (herein after referred to as the “IGST Act”), thereby resulting in determination of place of supply under section 13(8)(b) of the IGST Act?
Clarification: As per section 2(13) of the IGST Act defines that Intermediary means someone who arranges or facilitate the supply of goods and services but does not directly provide the main service themselves. If they provide main service themselves, they are not considered as Intermediary.
It is observed that the foreign clients enter into a comprehensive agreement with advertising companies/agencies in India and outsource the entire activity of advertising services to the advertising companies/agencies. Further, these advertising companies/agencies enter into an agreement with the media owners in India for implementing the said media plan and procurement of media space for airing or releasing or printing advertisement.
The advertising agency enters in to two agreements:
- Agreement with Foreign Company : for providing a one stop solution starting from designing the advertisement to its display in the media including media space as agreed to with Foreign Company.
- Agreement with Media Companies: To Buy ad space and manage the ad placement.
Since the Media company is only dealing with advertising agency and not the foreign company, There is no direct contract between the media company and foreign company. This means they are operating on a principal to principal basis. The Advertising agency is fully responsible for providing services.
Based on the above explanation it is clear that the advertising Company is not an Intermediary as per section 2(13) of IGST Act, the place of supply can not determined by the location of supplier as mentioned in section 13(8)(b) of IGST Act. As the advertising agency directly provide the service to foreign company, as Principal to Principal Basis hence it can not considered as Intermediary.
Q.2 Whether the representative of foreign client in India or the target audience of the advertisement in India can be considered as the “recipient” of the services being supplied by the advertising company under section 2(93) of CGST Act?
Clarification: As per Section 2(93) (a) of the CGST Act , the “Recipient” of the servicies means the person who is liable to pay consideration where a consideration is payable for the supply of goods or servicies or both.
The foreign client is liable to pay the consideration to advertising company for the supply of advertising and not the consumers or the target audience that watches the advertisement in India.
Even if a representative of the said foreign client based in India, including a subsidiary or related person of the said foreign client, is interacting with the advertising company on behalf of the said foreign client, the said representative based in India cannot be considered as a recipient of the service.
If the agreement is between the foreign client and the advertising company, the invoice is being issued for the said service by the advertising company to the foreign client and the payment for the said service is received by the advertising company directly from the said foreign client. the target audience of the advertisements may be based in India but such target audience cannot be considered as recipient of the said advertising services being supplied by the advertising company as per the definition of the recipient under section 2(93) of CGST Act.
Therefore, in view of above, it is clarified that the recipient of the advertising services provided by the advertising company in such cases is the foreign client and not the Indian representative of the foreign client based in India or the target audience of the advertisements, as per section 2(93) of the CGST Act, 2017.
Q.3 Whether the advertising services provided by the advertising companies to foreign clients can be considered as performance-based services as per section 13(3)of the IGST Act?
Clarification: Section 13(3)(b) of IGST Act provides that the place of supply shall be the location where the services are actually performed in case,where,
a. services are supplied to an individual
b. represented either as the recipient of services or a person acting on behalf of the recipient, and
c. which requires the physical presence of the recipient or the person acting on his behalf, with the supplier for the supply of services
In the present case the service provided by indian agency do not require the physical presence of foreign client, their representative or anyone acting on their behalf. The foreign client does not need to be physically present in india to receive the advertising servicies.Therefore the services can not be considered as services that must be performed in india under section 13(3)(b) of the IGST Act.
Accordingly, it is clarified that the place of supply of advertising services in such cases can neither be determined as per the provision of section 13(3)(a) nor as per the provisions of section 13(3)(b) of IGST Act.
Since the foreign client is located outside india , the place of supply is considered to be outside india. This means that the advertising servicies provided by the indian agency can be treated as export of services as long as the conditions for export under section 2(6) of the IGST Act are met (such as receiving payment in foreign currency and the supplier being in india). If this conditions are fulfilled, the advertising servicies are considered exported and the indian agency may be eligible for export related benefits.
However, there may be cases where the advertising company located in India merely acts as an agent of the foreign client in engaging with the media owner for providing media space to the foreign client. In such cases, 1.The agreement/ contract for providing the media space and broadcast of the advertisement is directly between media owner and the foreign client.
2.The media owner directly invoices the foreign client for providing the media space and broadcast of the advertisement and the foreign client remits the payment for the said services directly to the media owner.
In such instances, the services of providing media space and broadcasting the advertisement are directly provided by the media owner to the foreign client. In such cases, the advertising company is merely facilitating the provision of the said services of providing media space and broadcasting the advertisement between the foreign client and the media owner and does not provide the said services on its own account. The advertising company invoices the foreign client for the facilitation services provided by it.
Consequently, in such cases, the advertising company is an “intermediary” in accordance with Section 2(13) of the CGST Act, 2017, as elucidated in Circular No. 159/15/2021-GST dated 20.09.2021, in respect of the said services of facilitating the foreign client and accordingly, the place of supply in respect of the said services provided by the advertising company to the foreign client is determinable as per section 13(8)(b)of IGST Act,
i.e. the location of the supplier, i.e. the location of the advertising company.
Download- Circular No 230-24-2024
